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HDB Financial Services Limited — Q3 FY26 earnings call

Call held 14 Jan 2026

Management summary

HDB Financial Services reported a strong Q3 FY26 with record disbursements of ₹17,917 crores and robust PAT growth of 36% Y-o-Y, driven by improved NIM and stable asset quality. The company's customer base expanded significantly to 22 million. While a one-time provision for new labour codes impacted reported PAT, underlying performance remained strong, with management expressing confidence in future growth and asset quality improvements across segments.

Highlights

Disbursements for Q3 were ₹17,917 crores, an all-time high, up 14.9% Q-o-Q.
Reported PAT for Q3 grew 36% Y-o-Y to ₹644 crores; excluding one-time impact, PAT grew 45% Y-o-Y.
NIM improved to 8.09% in Q3 FY26 from 7.95% in Q2 FY26 and 7.46% in Q3 FY25.
Customer franchise grew to 22 million, up 4.8% sequentially and 19.3% Y-o-Y.
Gross Stage 3 improved to 2.81% as of December 31, 2025, similar to September 30, 2025.

Concerns

A one-time provision of ₹60.52 crores was made for Employee Benefit Expenses due to new labour codes.
Unsecured business portfolio quality has stabilized, but a return to growth trajectory is expected in coming quarters, implying current quarter growth was not strong.
Asset quality challenges in CV and CE book from H1 showed signs of improvement in Q3 in early buckets, indicating ongoing monitoring is required.

Key financials

2 periods

Headline

Total Gross Loan Book
₹1.15L Cr
YoY +12.2% QoQ +2.8%
Net Interest Margin (NIM)
8.1%
Gross Stage 3
2.8%
Provision for Coverage (Stage 3)
55.6%
Cost-to-Income Ratio (lending business)
39.5%
Total Capital Adequacy
21.8%
Book Value Per Share
₹239

Q3

Disbursements
₹17,917 Cr
QoQ +14.9%
Net Interest Income
₹2,285 Cr
YoY +22.1% QoQ +4.2%
Reported PAT
₹644 Cr
YoY +36%
PAT (excl. one-time impact)
₹686 Cr
YoY +45% QoQ +18%
RoA (annualized)
2.4%
RoE (annualized)
14%
EPS
₹7.8

What they filed

₹ Cr · quarterly

Line item	Q4 FY24	Q3 FY25	Q4 FY25
Revenue	3,667	4,144	4,266
Expenses	1,368	1,809	1,858
Other income	0	0	0
Interest	1,377	1,645	1,650
Depreciation	40	49	54
Profit before tax	882	641	704
Tax rate	26%	26%	25%
Net profit	656	472	531
EPS	8.27	5.95	6.67

How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Enterprise Lending
0.178 Q-o-Q Gold Loans Book Growth
Consumer Finance
0.173 Q-o-Q Book Growth

Capital allocation

high confidence

Debt Debt disclosed Maturity: Positive cumulative mismatch across all buckets up to five years.
- Rate reset Cost of borrowing reduced by 2 to 3 bps approximately on the whole.
- Forex hedge Entire ECB book is fully hedged, resulting in zero impact from INR depreciation.
Our borrowing mix remains well diversified with a positive cumulative mismatch across all buckets up to five years
Liquidity Liquidity disclosed Total capital adequacy of 21.81% as at December 31, 2025.

We remain well capitalized with a total capital adequacy of 21.81% as at December 31, 2025.

Guidance & targets

Profitability

NIM Profitability · coming few quarters · High confidence 7.9-8%

On the yield side, as I had mentioned in the last call, we expect the NIM to range generally in the 7.9 to 8. It is 8.09 currently. As we go into Q4 and the overall markets are there, there is pressure obviously on yields across products. We've done well as a business to hold on to our yields. We expect again that to be range bound at least for the coming few quarters in the range of 5 to 10 bps, not a lot more variance from there. So we should be able to hold on to our NIMS in the region of 8 as we had mentioned.

— Jaykumar Shah
Credit Cost Profitability · ongoing · Medium confidence Reduce by a few bps

Today, it is at around 2.5% and the endeavour is to move it towards what we had in the prior quarters and shave off some of a few bps from there. We'll see as we go along.

— Jaykumar Shah
Credit Cost Profitability · longer term · Medium confidence 10 to 20 bps lower

See, the longer term, we'd like to operate, at least 10 to 15 bps or at least 20 bps lower than where we are today. Overall, that is where we would want to operate in the longer term. And in the medium term, try and get there faster than slower.

— Jaykumar Shah

Credit Growth

Book Growth Credit Growth · medium term · Medium confidence Nominal GDP + 6-7%

In terms of 18% to 20%, the way we've always looked at it, Viral, is the nominal GDP plus 6 to 7. And overall, the thought process does not change. We believe growth will start kicking in from here on, and it should be in more positive range from where we stand today.

— Jaykumar Shah

Asset Quality

Unsecured SME Growth Asset Quality · in a couple of quarters · Medium confidence Growth back

In a couple of quarters, we should see growth come back on that.

— Jaykumar Shah
CV/CE Book Health Asset Quality · coming quarter and next two quarters · Medium confidence More healthier

We believe as we go through the coming quarter and the next two quarters, we should be in a position to bring the book even more healthier from where it stands today, more towards a Q1 or a Q4 past, in terms of that line.

— Jaykumar Shah

What to watch in Q4 FY26

Unsecured SME Segment Growth

in a couple of quarters

Current Stabilized, but not yet strong growth

Target Growth to return

Why it matters

Indicates recovery and growth in a segment that previously faced pain.

With the unsecured SME pain that was there for the last five to six quarters, if I can put it that way, that has clearly started easing off. The book, as you would have seen in the investor deck, has actually reduced slightly by almost 1%. But there, the health of the book has actually improved. So we're seeing it very positively. We need to start pushing hard into that space and growing from here on. It will take some time as we've taken five – six quarters to really make sure a lot of things fall in place. In a couple of quarters, we should see growth come back on that.

Risks & concerns

Impact of New Labour Codes
medium

A one-time provision of ₹60.52 crores (or ₹61 crores overall) was made for Employee Benefit Expenses. The company continues to monitor the finalization of Central/State Rules and clarifications from the Government on other aspects of the labour code.

Management acknowledged
Unsecured Business Portfolio Growth
medium

Portfolio quality on unsecured business has stabilized, but a return to growth trajectory is expected in the coming quarters, indicating current growth is not yet robust.

Management acknowledged
Asset Quality in CV and CE Book
medium

Asset quality challenges called out in H1 showed signs of improvement in Q3 in the early buckets, implying ongoing vigilance is needed.

Management acknowledged
Competitive Intensity
medium

Analyst raised concerns about increasing competitive intensity with many players receiving growth funding, but management believes the market is large enough for growth.

Analyst downplayed
Global Uncertainties
low

Global uncertainties around geopolitical tensions and trade remain a key monitorable.

Management acknowledged

Q&A highlights

7 direct

Weakness in CV/CE and unsecured MSME segments, and post-festive demand outlook Direct

So first one being weakness in CV and CE. So this was something that Ramesh mentioned at the beginning. That is something we called out in Q1 and Q2. And we had mentioned that we expect it to stabilize in the current quarter, which is Q3 and we have actually seen that. So it's a part of two stages, kind of two stories. One is on the 90+, where we have seen it stabilize. There is some more work to be done, where we bring that down further. And that's one of the reasons why you see the Gross Stage 3 at 2.8%.

Analyst probed on the recovery of previously weak segments and the sustainability of demand post-festive season, which is critical for growth trajectory.

Asked by Abhijit Tibrewal

Book growth targets and the BAU impact of the new labour code Partial

In terms of 18% to 20%, the way we've always looked at it, Viral, is the nominal GDP plus 6 to 7. And overall, the thought process does not change. We believe growth will start kicking in from here on, and it should be in more positive range from where we stand today. Second one... On your second question on opex and BAU impact of the labour code, the way I would see is that, as I mentioned, it's a developing area. From what we were aware of based on the draft rules, what information we've had, we've taken a provision as of now. Let this space develop over the coming months. And let us get finality. Then it would be better for us to comment on this.

Analyst sought clarity on long-term book growth targets and the recurring financial impact of the new labour codes, which management deferred commenting on until further clarity.

Asked by Viral Shah

Cost of borrowings, NIM trajectory, and decline in gross Stage 2 loans Direct

On the yield side, as I had mentioned in the last call, we expect the NIM to range generally in the 7.9 to 8. It is 8.09 currently. As we go into Q4 and the overall markets are there, there is pressure obviously on yields across products. We've done well as a business to hold on to our yields. We expect again that to be range bound at least for the coming few quarters in the range of 5 to 10 bps, not a lot more variance from there. So we should be able to hold on to our NIMS in the region of 8 as we had mentioned.

Analyst questioned the sustainability of NIM and the positive trend in Stage 2 loans, which management attributed to effective recovery strategies.

Asked by Nischint Chawathe

Impact of GST cuts on vehicle ticket size and net slippages in specific segments Direct

So the bulk of our business really has had no impact on because GST rate cut, other than the fact that it's driven positive sentiment in the market. So within 2-wheelers and auto loans, we have seen about a 5% reduction in our average ticket size because the vehicle prices itself have come down. Also, I think a couple of manufacturers have cut prices of some of the entry level vehicles that they're selling as a festive offer. So that's also driven sales in the entry level segments. So I won't call it de-premiumisation, which would suggest that a customer could afford to buy something more and has actually bought something cheaper.

Analyst inquired about the underlying reasons for ticket size changes and the concentration of slippages, providing insight into market dynamics and asset quality drivers.

Asked by Shreya Shivani

Fee income growth, branch count reduction, and ARC transactions Direct

So fee income is primarily driven by the product mix and with the 15% disbursement growth and the product mix, there's been an increase in fee income. So in terms of branch count, there are branches that we will sort of review at the end of some time to see whether they are viable, whether they met their milestones that we set out for them. So there'll be branches that we relocate. So given that, given the nature of our business and given our processes, it's quite, we can take these decisions quite quickly.

Analyst sought clarification on non-interest income drivers, operational efficiency (branch rationalization), and the strategy behind ARC sales, which are key to profitability and asset quality management.

Asked by Prithviraj Patil

Margin vs. growth trade-off and credit cost improvement for RoA Direct

So two things. I don't think the margin piece impacts growth directly. Sorry, it does impact, but it doesn't in the sense that we believe we're in the right zone as far as our product mix goes. Plus, if you observe an important factor and thank you for the question, our secured book has actually gone up 50 bps from last quarter itself and almost 90 bps plus in the last two quarters. As the unsecured comes back, which is what we're focusing on, which is two segments for us, which is Relationship Personal Loans and the unsecured Business Loans. We believe that will also help us on the top line.

Analyst questioned the company's strategy regarding balancing margins and growth, and the potential for credit cost reduction to drive RoA, providing insight into future profitability levers.

Asked by Avinash Singh

Average ticket size trends and credit cost trajectory Direct

The way I would look at it, Kunal, is I mean, it's a small number just now. The GST cuts have come through, there has been fairly very good volumes that have happened during the festive on the two wheeler side. I think that's an important one. And you've got to look at it in that perspective. Second is, if you look at our new business, as I mentioned earlier because of the festive actually grew more and whenever the new grows more, naturally you will have a higher ATS.

Analyst sought to understand the drivers behind the increasing average ticket size despite GST cuts and the expected timeline for credit cost improvement, which impacts future profitability.

Asked by Kunal Shah

Structural shifts in NBFC sector, competition, and technology investment vs. margin protection Direct

Okay. So, glad you asked me that question. I've been in the consumer lending industry for about 30 years now, which is pretty much the age of the consumer lending industry in India. I've worked in the consumer lending industry when there were no credit bureaus. So, in this industry, technology change is a given. It is not a one-off event. So that's something that we invest for continuously. So there's no end game as far as technology is concerned because technology itself is a moving train, right? And that's something that we need to adapt to on a continuous basis.

Analyst raised strategic questions about the company's long-term competitive positioning, technology investments, and how these balance with short-term margin goals, providing insight into the company's strategic priorities.

Asked by Sucrit D. Patil

3 min read 6 chapters

Detailed narrative

Q3 FY26 Financial Performance Highlights

HDB Financial Services reported strong financial performance for Q3 FY26, with disbursements reaching an all-time high of ₹17,917 crores, marking a 14.9% sequential growth. The total gross loan book stood at ₹1,14,577 crores as of December 31, 2025, growing 12.2% Y-o-Y. Net Interest Income for the quarter was ₹2,285 crores, an increase of 22.1% Y-o-Y, while the Net Interest Margin improved to 8.09% from 7.95% in the previous quarter. Reported Profit After Tax grew by 36% Y-o-Y to ₹644 crores, and excluding a one-time provision, PAT grew by 45% Y-o-Y to ₹686 crores.

Asset Quality and Recovery Efforts

The company maintained stable asset quality, with Gross Stage 3 at 2.81% as of December 31, 2025, similar to the previous quarter. Provision for coverage for Stage 3 stood at 55.59%. Management noted that asset quality challenges in the CV and CE book from H1 showed signs of improvement in Q3, particularly in early buckets. Recovery efforts have been positive, with delinquent books being pulled back into Stage 1, and 0 DPDs (days past due) across all products inching up, indicating improved collection efficiencies.

Segmental Business Performance

Consumption growth remained strong during the festive season, positively impacting business segments. The Consumer Finance segment's book grew by 17.3% Q-o-Q, driven by Auto, 2-wheeler, and Consumer Durables. Gold loans within Enterprise Lending grew by 17.8% Q-o-Q, while LAP and Enterprise Business Loans showed moderate growth. The unsecured SME segment, which previously experienced pain, has started to ease off, with management expecting growth to return in a couple of quarters.

Margin and Cost Management

The Net Interest Margin (NIM) for Q3 FY26 improved to 8.09%, reflecting efforts in balancing product mix through focused origination. The cost-to-income ratio for the lending business reduced to 39.5% in Q3 FY26 from 40.7% in Q2 FY26. Management indicated that the cost of borrowing has reduced by 2-3 bps and their ECB book is fully hedged, mitigating forex impact. They aim to maintain NIM in the 7.9-8% range for the coming quarters and reduce credit costs from the current 2.5% by a few basis points in the long term.

Impact of New Labour Codes

The company recognized a one-time provision of ₹60.52 crores (or ₹61 crores overall) for Employee Benefit Expenses in Q3 FY26 due to the notification of new labour codes. This provision was treated as past service costs under IND-AS 19. Management stated that all clarifications received to date have been fully provided for, and they continue to monitor the finalization of Central/State Rules and clarifications for any further accounting treatment.

Strategic Outlook and Growth Drivers

HDB Financial Services continues to focus on serving aspirational India, expanding its franchise to over 22 million customers across 1,744 branches. Management expects growth to be in the range of nominal GDP plus 6-7%, aligning with their 18-20% book growth target. They emphasized continuous investment in technology and processes to adapt to customer needs and market changes. The company remains well-capitalized with a total capital adequacy of 21.81% as of December 31, 2025, supporting future growth initiatives.

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