To achieve lower LDRs and above-industry loan growth, deposit growth needs to accelerate significantly. What are the reasons for slower deposit growth this quarter, and can the bank quantify any rundown in bulk deposits?

Management clarified there's no regulatory LDR benchmark, but an internal glide path aims for 90-96% in FY26 and 85-90% in FY27. Slower deposit growth this quarter was a tactical choice, prioritizing rate discipline over aggressive bulk deposit acquisition. Retail individual deposits showed solid double-digit growth, while institutional and non-individual retail segments grew in single digits due to not matching market rates. “The focus -- the good part is retail has grown very steadily and very -- and all these are the granular ones. I'm very happy with that. If the non-retail, tactically, we did not sort of offer the kind of market rates that were there. And we said it's all right because we did sort of know for the kind of growth that we needed, that is good enough.”

The estimated INR 8 billion impact from the labor code seems high compared to other banks, representing over 10% of employee costs. Is this an estimation, and what would be the recurring impact?

The INR 8 billion is an estimate based on actuarial processes and current information, but rule-making on 'wage' definition is pending. The impact can vary significantly across organizations due to staff longevity and other factors. It's a high estimate based on best available information, and a recurring impact cannot be determined at this stage. “So at this time, I would just ask you to take it as a higher estimate based on best available information and through a scientific actuarial process that has come. And as and when the rule-making evolves, as and when more information is available, this will be evolved.”

The FY27 LDR target of 85-90% seems aggressive given consensus loan growth. Can management elaborate on the flexibility and confidence in achieving this? Also, what are the broader asset quality trends and any concerns in the economy, particularly due to US tariffs or MSME?

Management clarified the LDR target is a broad range, aiming for around 90% (e.g., 88-89%) by FY27, and 95-96% for FY26, emphasizing the directional trend. Asset quality remains pristine across the banking industry and for HDFC Bank, with very low NPA accretion and no particular stress points. Economic indicators like improved crop cycles, manufacturing PMI, and discretionary card spending suggest improving growth momentum. “But even if I achieve these kind of directions directionally going there, that's something that we can achieve. As I said, there is no regulatory number to comply to. It is just a direction that I think we need to achieve for ourselves, let alone the regulator asking us to do. It is something that we believe just by doing what we are supposed to do will lead us to that kind of thing.”

HDB

HDFC Bank (HDB) Q3 FY26 earnings call: guidance and Q&A

Earnings call· Dec 2025 (Q3 FY26)· Financials· Jan 17, 2026

Source: earnings call transcript

Executive summary

HDFC Bank Q3 FY26 — Strong Credit Growth and Granular Deposit Focus

HDFC Bank delivered strong credit growth and maintained pristine asset quality in Q3 FY26, aligning with expectations. The bank is intensifying its focus on granular deposit mobilization and customer engagement to manage its loan-to-deposit ratio (LDR) and fund future loan growth. Management expressed confidence in achieving its LDR glide path and outpacing system loan growth in the next fiscal year, despite some tactical slowdown in deposit growth this quarter and competitive pricing pressures in certain loan segments.

Highlights

Credit growth buildup has been extremely encouraging, with a balanced approach across customer segments.
Cost of funds moved down by 10-11 basis points QoQ, reflecting tailwind effects and rate discipline.
Core individual retail customer segments for deposits showed solid double-digit growth.
Credit quality remains best-in-class, with very low accretion to gross NPAs and net slippages (ex-agri) at 24 bps.
Confident in outpacing system loan growth by a couple of percentage points in FY27.

Concerns

Fell short of strong ambitions for overall deposit growth this quarter, partly due to tactical choices on bulk deposits.
Liquidity was impacted due to enhanced activity in open market operations and FX swaps.
Estimated INR 8 billion impact from the new labor code on employee costs, based on current actuarial estimates.
Irrational pricing observed from competitors in auto and home loan products, though not expected to sustain.

Guidance & targets

Category	Target	Timeline	Confidence
Loan-to-Deposit Ratio (LDR)	90% to 96% high materiality	FY26	High
Loan-to-Deposit Ratio (LDR)	85% to 90% high materiality	FY27	High
Loan Growth	faster than system high materiality	FY27	High
Loan Growth vs. System	couple of percentage points above system growth high materiality	FY27	High
Top Line Growth	in line with system medium materiality	FY26	High
Top Line Growth	faster than system medium materiality	FY27	High
Branch Additions	lower than 500-700 annually low materiality	Near future	Medium

Risks & headwinds

Liquidity Impact from Open Market Operations and FX Swaps Q3 FY26

enhanced activity

Mitigation:Overall liquidity in the country is expected to stabilize post trade deals.

Irrational Pricing in Auto and Home Loans current

not quantified

Mitigation:Management states irrational pricing never sustains and will play itself out in a couple of quarters. The bank focuses on relationship-based lending rather than price competition.

Uncertainty of Labor Code Impact ongoing

INR 8 billion (estimate)

Mitigation:The bank has made an estimate, but the final impact will depend on pending rule-making regarding the definition of 'wage' and other variables.

What to watch in Q4 FY26

LDR Glide Path Progress

next quarter and FY27

Current 90-96% targeted for FY26

Target continued downward trajectory towards 85-90% by FY27

Why it matters

The LDR trajectory is critical for funding future loan growth and sustainable profitability, as committed by management.

We said we will try and be in a range of somewhere between 90% to 96% in the year FY '26, which is what we will be is what we are very confident about. And then maybe by FY '27, by the natural growth and even with the growth in the way we are expecting in terms of faster growth rate, I think we should land somewhere around the 85% to 90% for FY '27.

Find out whether HDB delivers this. Inve re-checks your case every morning.

Q&A highlights

When does the bank expect to reach an LDR close to 90% or below? Also, regarding agri compliance, is the bank fully compliant, or could there be future provisions similar to other banks?

Management expects LDR to reach the 90s or low 90s over the next 1-2 years, driven by continued focus on deposit growth. For agri compliance, a provision of INR 5 billion was already absorbed in the December quarter, and the bank is recalibrating its book to align with regulatory requirements, not expecting future one-time impacts.

“Given that, we do expect that over the next 1 year to 2 years, we would be getting down further into the levels that we had previously been there, call it, the 90s or low 90s and so on. And that's the level of confidence we have and the pillars that are required to drive that are in place to do that.”

asked by Mahrukh Adajania · answered by Srinivasan Vaidyanathan

3 min read 6 chapters

Detailed narrative

Loan-to-Deposit Ratio (LDR) Strategy

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.

Agri Compliance and Provisions

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.

Labor Code Impact

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.

Asset Quality Trends

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.

Branch Expansion and Productivity

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.

Card Strategy Evolution

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.