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HDFC Bank Cuts FD and Savings Rates!
Equities, Markets, Research, Result Updates - February 11, 2025

HDFC bank Q3FY25: Loan growth decline, NIMs margin stable

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.

  1. 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. 
  2. 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.
  3. 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. 
  4. 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

  1. 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.
  2. 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.
  3. 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. 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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HDFC Bank's Q2FY24 PAT reached INR 159 bn driven by strong loan growth

HDFC Bank’s Q2FY24 PAT reached INR 159 bn driven by strong loan growth

Company Overview:

HDFC Bank, the largest private sector bank in India, offers a diverse range of banking and financial services. Their portfolio includes retail loans such as home loans, LAP, 2-wheeler loans, personal loans, as well as wholesale loans for corporates, businesses, and agriculture. In Q2FY24, retail loans accounted for 51% of the loan book, while wholesale loans constituted the remaining 49%. The company expanded by adding 85 net new branches, increasing their total to 7,945 compared to 6,499 in Q2FY23, with a total customer base of 91 million, marking a 7% QoQ growth.

Deposit grew 5.3% QoQ (merged basis) which reduce CASA to 37.6% in Q2

During Q2FY24, deposits increased by 5.3% QoQ (on a merged basis), reaching 21,729 billion, while the loan book grew by 4.9% QoQ (on a merged basis) to 23,328 billion. The increase in term deposits resulted in a reduced CASA ratio of 37.6%. Gross advances stood at 23,546 billion, growing by 4.9% QoQ (on a merged basis). Retail deposits accounted for 83% of the total, with the remaining 17% being wholesale deposits in Q2FY24.

Loan book up 5.5% QoQ driven by Retail and CRB in Q2

In Q2FY24, the retail loan book expanded by 3.1% QoQ (a remarkable 106.62% YoY) to 11,995 billion, while the CRB (Corporate, Retail, and Business Banking) loan book grew by 9.7% QoQ (29.46% YoY) to 7,052 billion. Among the retail loans, credit card and personal loans grew by 0.5% and 1.1% QoQ, respectively, while gold and other retail loans displayed robust growth at 7.8% and 7.2% QoQ in Q2FY24. In the CRB segment, agriculture and business banking demonstrated strong growth at 13.6% and 10% QoQ, while corporate loans increased by 5.8% QoQ.

NIMS Contraction – 70 bps QoQ to 3.65% Impact of High CoF

Net Interest Margins (NIMs) declined by 70 basis points (bps) QoQ, reaching 3.65%, primarily due to an 80 bps increase in the cost of funds (CoF) QoQ (150 bps YoY), which stood at 4.8%. This increase in CoF was attributed to excess liquidity in the merged arm of HDFC Bank, which incurred higher costs. On the other hand, the yield on loans rose by 135 bps QoQ (218 bps YoY) to 9.7%, resulting in a spread of 3.26%, reduced by 35 bps QoQ (42 bps YoY).

Slight Increase in GNPA/NNPA- 17bps QoQ/5bps QoQ

Asset quality experienced a minor decline in Q2FY24, with Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) increasing by 17 bps QoQ and 5 bps QoQ, respectively, to 1.31% and 0.35%. The amounts for GNPA and NNPA stood at 3,15,799 million and 80,728 million, respectively. The provision coverage ratio remained at 74.4%, compared to 74.9% in the previous quarter. Capital Adequacy Ratio (CAR) continued to be strong at 19.54% in Q2FY24, exceeding the RBI guidelines of 15%.

Valuation and Key Ratios:


As of the current market price of 1,489, the stock is trading at 2.87 times its book value of 519 per share. The company reported healthy return ratios in Q2FY24, with Return on Assets (ROA) at 2%, Return on Equity (ROE) at 16.2%, and an Interest Coverage Ratio of 1.65x, signifying the company’s solvency.

Q2FY24 Results Updates: Standalone

➡️ In Q2FY24, interest income surged by 75.45% YoY (39.33% QoQ) to 676,984 million, while interest expenses increased by 129.51% YoY (61.33% QoQ) to 403,132 million, resulting in Net Interest Income (NII) of 273,852 million, growing by 30.27% YoY (16.04% QoQ).

➡️ The healthy growth in NII was driven by the high yield on loans, which increased by 135 bps QoQ and 218 bps YoY.

➡️ Total income in Q2FY24 increased by 33.11% YoY (16.03% QoQ) to 380,930 million, led by a 40.97% YoY and 16.04% QoQ increase in other income.

➡️ Pre-Provision Operating Profit (PPOP) income grew by 30.48% YoY (20.89% QoQ) to 226,938 million, driven by operating efficiency. The cost-to-income ratio dropped by 240 bps QoQ.

➡️ Profit After Tax (PAT) surged by 50.64% YoY (33.67% QoQ) to 159,761 million, resulting in Earnings Per Share (EPS) for the quarter standing at 21 Rs, growing by 10.53% YoY and remaining stable on a QoQ basis.

Conclusion:

HDFC Bank, India’s largest private sector bank, reported positive Q2FY24 results with healthy growth in deposits and advances. The bank’s loan book showed significant expansion in both retail and corporate segments, and while there was a slight contraction in net interest margins due to higher cost of funds, the overall financial performance remained robust. Asset quality remained stable, and the bank continued to maintain a strong capital adequacy ratio. With a trading valuation at 2.87 times book value and healthy return ratios, HDFC Bank continues to demonstrate its resilience and strength in the Indian banking sector.

 

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