HDFC Bank

HDFC Bank reported a robust FY26, with credit growth accelerating to 12% from 5.5% in FY25, and deposit growth at 14.4%, outpacing credit. Net income grew 11% and EPS increased by 10% compared to 3% last year. The bank maintained a stable Return on Assets (RoA) at 1.9% and improved its cost-to-income ratio to 39.5% from 40.5% in the previous year, driven by cost efficiencies.

The bank maintains a strong capital position with a Capital Adequacy Ratio (CAR) of 19.7% and healthy asset quality, reflected in a gross NPA of 1.15%. A significant provisioning buffer of almost 125 basis points has been created to absorb future shocks. Management emphasized that the Loan-to-Deposit Ratio (LDR) is no longer a constraint, and the bank continues to gain deposit market share.

HDFC Bank's deposit franchise demonstrated significant strength, with incremental deposits less than INR 3 crores growing by approximately 74% over FY25, now constituting 47% of total net accretion compared to 31% previously. The bank's Liquidity Coverage Ratio (LCR) stands at 114%, within its target range of 110-120%, indicating comfortable liquidity management. The cost of funds marginally decreased to 4.4%, down 50 basis points year-on-year.

The bank has made substantial investments, quadrupling tech spend to over $1 billion, and now boasts a mobile app serving over 60 million registered customers. Digital adoption is high at 97% for payments and 92% for acquisitions. HDFC Bank has developed a unified AI platform with 5 use cases in production and 14 in development, aiming to enhance efficiencies and drive future RoA.

Retail growth has shown good traction across wheels, personal loans, and mortgages, with the bank expanding its mortgage coverage to over 7,800 locations from 6,800 previously. Corporate loans grew 13%, supported by demand in sectors like electronics, renewables, and auto ancillaries. The MSME segment, where HDFC Bank is a market leader, grew its business banking by 20% year-on-year, with expectations of continued growth in the 18-21% range.

The merger with HDFC Limited continues to yield significant synergies, with liability penetration for home loan customers increasing from 36% to 49-50% of the stock. CASA balances from the merged entity grew from INR 50,000 crores to INR 86,000 crores. The bank is actively cross-selling products like credit cards (23% of home loan customers have active cards), insurance, and wealth accounts to these customers.

Net Interest Margin (NIM) trajectory is influenced by the rate cycle and geopolitical situation, which has paused the rate reduction cycle and led to some upward movement in securities market rates. Investment yields have been impacted by the previous rate cycle and FX component, resulting in modest treasury income due to lower volumes and spreads. Management emphasized focusing on Return on Assets (RoA) rather than solely NIM, aiming for stable returns through efficiency levers.