HDFC bank Q3FY25: Loan growth decline, NIMs margin stable
About the Stock
HDFC Bank Limited is recognized as the biggest private sector bank in India in terms of assets value. The market capitalization of the bank is around Rs. 13,17,354 crore. On the basis of its large market capitalization , it is considered as the third biggest company on the Indian stock market.
The company is active in various segments of banking which includes retail banking, wholesale banking, and rural banking. The bank has five major subsidiaries- HDFC Asset Management Company Limited (HDFC AMC), HDB Financial Services Limited, HDFC ERGO General Insurance Company Limited, HDFC Life Insurance Company Limited, and HDFC Securities Limited.
Quarterly Update
1.Growth in net income and net profit- In the third quarter of the current financial year, the company recorded a growth of 7.7 percent YoY in net interest income which accounts to around Rs. 30,653.25 crore. HDFC also recorded a rise in PAT by 2.2 percent YoY which accounts to Rs. 16,735.5 crore. In terms of quarter-on-quarter basis, the rise in net income was about 1.8 percent. The provisions for NPAs fell to about 25 percent leading to a rise in net profit on a year-on-year basis.
- Robust growth in deposit ratio and slowdown in loan growth- HDFC recorded a strong growth in its average deposit to around 15 percent YoY compared to moderate growth of gross advances by only 3 percent. It is faster than the credit growth of the bank. It acts as an aid for the bank in achieving the goal of stable credit-deposit ratio. Currently, the AUM advances growth of 7.6 percent YoY.
- Slowdown in CASA- The company recorded weak CASA of only 1.1 percent QoQ growth in the third quarter of FY25. Consumers are opting more for time deposits due to economic uncertainties and high interest rates. The average time deposits surged by 22.7 percent in the third quarter.
- Stable Net interest Margin- In the third quarter of the financial year 2025, the company recorded a net margin of 3.43 percent compared to 3.46 in the previous quarter of the same financial year. It accounts for marginal decline.
- Marginal increase in GNPA and NPA- The company recorded growth in GNPAs to about 1.42 percent higher than the 1.36 percent in the previous quarter of the current financial year. Also, the company recorded a net NPA increase of about 0.46 percent compared to its net NPA growth of 0.41 percent in the second quarter of the current financial year. The reason for this is hike in GNPA and NPA is the seasonal slippage.
| Years (In Cr) | Q3FY25 | Q3FY24 | YoY (%) | Q2FY25 | QoQ (%) |
| Interest Income | 76006.88 | 70582.61 | 7.7% | 74016.91 | 2.7% |
| Interest Expenses | 45353.63 | 42111.27 | 7.7% | 43903.01 | 3.3% |
| NII | 30653.25 | 28471.34 | 7.7% | 30113.9 | 1.8% |
| Other income | 11453.56 | 11137.04 | 2.8% | 11482.73 | -0.3% |
| Total net income | 42106.81 | 39608.38 | 6.3% | 41596.63 | 1.2% |
| Employee Cost | 5950.41 | 5351.76 | 11.2% | 5985.3 | -0.6% |
| Other expenses | 11156 | 10609.32 | 5.2% | 10905.59 | 2.3% |
| Tota Opex | 17106.41 | 15961.08 | 7.2% | 16890.89 | 1.3% |
| PPOP | 25000.4 | 23647.3 | 5.7% | 24705.74 | 1.2% |
| Provision | 3153.85 | 4216.64 | -25.2% | 2700.56 | 16.8% |
| PBT | 21846.55 | 19430.66 | 12.4% | 22005.18 | -0.7% |
| Tax Expenses | 5111.05 | 3058.12 | 67.1% | 5184.31 | -1.4% |
| Tax Rate% | 23% | 16% | 48.6% | 24% | -0.7% |
| PAT | 16735.5 | 16372.54 | 2.2% | 16820.87 | -0.5% |
| PAT% | 22% | 23% | -5.1% | 23% | -3.1% |
| EPS | 21.88 | 21.40 | 2.2% | 21.99 | -0.5% |
| No. of shares | 765 | 765 | 765 |
Commentary
- The company recorded contraction in provisions of NPAs to around 25 percent leading to rise in net profit in the third quarter of FY25. The reason for this is wholesale credit segment performing well. Earlier, the contingent provision was set aside for its wholesale account. As it was unutilised due to performing assets in the segment, the company recovered it.
- The growth in deposit ratio is mainly driven by rise in retail term deposits rather than CASA ratio. The consumers’ preference towards term deposits was high in the third quarter due to the high interest rate and market condition in the economy. The management is also focused on holistic customer relationships. It believes CASA will gain again when changes in the interest rate take place.
- The loan portfolio of HDFC recorded contraction in credit growth by 10.4 percent YoY in corporate and other wholesale segments. While, the growth in credit creation of the commercial and rural banking segment was 11.6 percent. Apart from this, the growth in retail loans was about 10 percent due to cautious steps taken by the company in the midst of growing uncertainties in the economy. The growth in retail credit is mainly driven by growth in retail non-mortgages by about 10.5 percent YoY compared to 9.7 percent YoY in the retail mortgages segment. Overall, it aids in the company’s steps to stabilize its credit-to deposit ratio in the upcoming to 2 to 3 years.
- 4. The growth in NIM margin is stable and fairly in range of its trend in previous consecutive quarters. The reason for this is a cautious approach towards loan growth and focus on deposit growth. It is also due to the shift of consumers towards retail term deposits in the scenario of macroeconomic uncertainty and high interest. This cautious approach of the bank can possibly lead to stable NIMs in the upcoming terms as well.
Key Concall Highlights of 3QFY25
• HDFC Bank Ltd underlines some of the prevailing macroeconomic conditions such as moderate growth in demand at
urban levels, tightening of liquidity, depreciation of rupee, sluggish growth in private capital investment, and rise in
capital outflows in the midst of growing uncertainties in the world.
• Some positive indications like rise in government expenditure and also expansion in rural demand in the economy is
observed. It resulted in strong growth in service exports and inflation levels are gradually slowing down.
• Robust growth in deposit ratio to about 15 percent mainly driven by retail term deposits. While, slowdown in CASA
ratio and loan growth. It is expected to achieve stability in credit‐to‐deposit ratio in the upcoming 2 to 3 years.
• The employee headcount of the rose again by 2,10,000 in the 3Q compared to its contraction in 2Q of the current
financial year. The company is currently focused on increasing productivity of the employees.
• Addition of more than 1,000 branches YoY in the 3QFY25 and still able to maintain growth in cost at around 7 percent.
It indicates productivity gains for the company.
• Post‐merger of the company, the company manages to open about 1.9 million fresh accounts. It indicates the success
of the merger.
• The company aims to make investment in branches, people and technology. It expects to grow at a similar pace in the upcoming financial year 2026 and higher in the financial year 2027.
Valuations
In present times, the stock of HDFC is trading at multiple of 19.1 x 91.3 EPS at the CMP of Rs. 1,759. In book terms, trading 2.90x than its book value of Rs. 601 As of today, the ROCE and ROE of the company is at 7.67 percent and 17.1 percent, respectively. The company is progressive in terms of its strategy to expand deposit levels and is supported by hike in retail term deposits and moderate loan growth.
Investment Rationale
- According to the Economic Survey of 2024-2025, the monetary and financial sector in India has recorded a robust performance in the first three quarters of the financial year 2025. Overall, the growth of bank deposits was in double-digit.
- According to the recent RBI report, the banking sector in India recorded profitability for the sixth year in a row in the financial year 2023-24. It is anticipated to record profitability in the current financial year as well. Also, the GNPAs of the Indian banking sector went down to 2.7 percent which is the lowest since the last 13 years. It indicates an improvement in the asset quality of the banks
- In the first half of the current financial year, Indian banks are recording a continued rise in their Return on Assets and Return on Equity by 1.4 percent and 14.6 percent, respectively. Apart from this, the scheduled commercial banks in India (including 21 private sector banks and excluding RRBs) recorded growth in their consolidated balance sheet 15.5 percent in the financial year 2023-2024.
- In the budget 2025, the decision of tax relief up to Rs. 12.75 lakh income is not only expected to drive consumption in the economy but also increase deposits levels of the banks to more Rs. 40,000 to 45,000 crore. It is anticipated to aid in mitigating liquidity issues of the banking sector.
- In terms of growth of HDFC Bank, the growth of the deposit ratio of the company is also increasing like the overall growth of deposit levels of the banking sector. It accounts for 15 percent YOY in the third quarter. After the company’s merger in the year 2023, the company planned a goal to contract its loan-deposit ratio in the upcoming 2 to 3 years and to bring better financial stability in the company.
- Its result in the third quarter of FY25 indicates its progressive steps towards lowering loan-deposit ratio. Currently, the credit to deposit ratio is around 98 percent. The company believes that it will grow in line with the industry growth in the upcoming financial year and higher in the financial year 2027.
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