HDFC BANK Q3 FY26 earnings call HDB

Management reiterated its commitment to a downward glide path for the LDR, targeting a range of 90-96% by FY26 and 85-90% by FY27. While acknowledging a tactical slowdown in deposit growth this quarter due to rate discipline and market conditions, the bank is confident in achieving these targets through continued focus on granular deposit mobilization and leveraging its expanding customer base. The speed of LDR movement depends on providing funding at rational rates and overall liquidity conditions, but management does not foresee the LDR as a constraint under current scenarios.

Following a regulatory inspection, HDFC Bank has absorbed a provision of approximately INR 5 billion related to non-compliance issues in its agri portfolio, which was subsumed in the December quarter results. The bank is recalibrating its agri book based on the scale of finance to ensure future compliance and is engaged in an ongoing process to operate within regulatory models. This one-time^📎 impact has been absorbed without special disclosure.

The bank has made an estimated provision of INR 8 billion for the potential impact of the new labor code. This estimate is based on an actuarial process and current information, but management noted that the definition of 'wage' and other rule-making aspects are still pending. The actual recurring impact is uncertain and will evolve as more clarity emerges on the regulations, with individual organizations potentially seeing different effects based on staff longevity and tenure.

HDFC Bank continues to experience pristine asset quality, mirroring the broader banking industry's 'Cinderella phase' of strong balance sheets. The bank reported very low accretion to gross NPAs, with no particular portfolio indicating stress. Net slippages, excluding the agri segment, were 24 basis points for the quarter, consistent with prior periods. The economic environment, characterized by GDP growth, consumption, wage increases, and lowering interest rates, supports this benign credit quality.

The bank's branch network has grown significantly over the past five years, with 4,800 branches added, now totaling over 9,600. While the pace of new branch additions will be more modest in the near future, the focus is on maturing existing cohorts. Per-branch productivity has increased to INR 305 crores, up from INR 237 crores in 2019-2023. Branches typically break even in about two years, and older branches show significant scaling, with those in the 5-10 year bucket performing 3x better and 10-15 year branches 10x better than their initial performance. New branches contribute slightly over 20% of incremental deposits.

HDFC Bank's credit card strategy is evolving from a net receivable/asset perspective to an enabler for liabilities and deposits. The bank focuses on middle and upper-middle segments, where customers tend to be transactors rather than revolvers. Card spends are a significant driver of deposit momentum, contributing 20-25% of the total deposit basket. The proportion of card revolvers is now less than two-thirds of pre-2020 levels, reflecting a cautious approach to credit line increases to avoid delinquency.