HDFC Bank Ltd., India’s largest private sector lender, reported a stronger-than-expected profit for the September quarter, supported by steady loan growth and improving asset quality, even as pressure on margins persisted.
The results highlight the bank’s resilience amid a challenging deposit environment following its merger with Housing Development Finance Corp. (HDFC) Ltd. last year.
Profit surpasses estimates on healthy loan growth
The bank’s standalone net profit rose 10.8% year-on-year to Rs 18,641.3 crore ($2.1 billion) in the quarter ended September, beating the average analyst estimate of Rs 17,345 crore, according to data compiled by Bloomberg.
The performance was driven by an expansion in its loan portfolio, particularly in the small- and mid-market enterprise segments, which continue to show robust demand.
HDFC Bank’s loan book grew nearly 10% from the same period last year, reflecting steady credit demand despite tighter liquidity conditions.
The lender’s gross non-performing assets (NPAs) stood at 1.24% at the end of September, an improvement from 1.4% in June, underscoring continued strength in asset quality.
HDFC Bank’s net interest income (NII), which represents the difference between interest earned on loans and paid on deposits, rose 4.8% year-on-year to ₹31,551.5 crore, up from ₹30,113.9 crore in the same quarter last year.
The net interest margin (NIM) declined by 8 basis points from the previous quarter, indicating ongoing challenges in balancing funding costs and lending rates.
During the quarter, the bank also recorded a one-time gain associated with the initial public offering of its subsidiary, HDB Financial Services Ltd.
On June 25, 2025, HDB Financial launched an IPO consisting of a fresh issue of ₹2,500 crore and an offer for sale (OFS) of ₹10,000 crore by HDFC Bank.
Through the OFS, the bank sold 13.51 crore shares at ₹740 each, generating a pre-tax gain of ₹9,128.4 crore (after accounting for estimated IPO-related expenses) for the half-year ended September 30, 2025.
Post-merger deposit challenges continue
Since completing its merger with parent HDFC Ltd. in 2023, HDFC Bank has been recalibrating its balance sheet to align deposit growth with its expanded loan book.
The merger added a substantial pool of mortgage loans to the bank’s assets but contributed relatively fewer deposits, creating a funding gap that has weighed on its margins.
To address this, the bank has focused on mobilizing more retail and low-cost deposits while managing loan growth prudently.
Analysts note that sustaining this balance will remain a key challenge for the bank in the coming quarters, particularly as competition for deposits intensifies across India’s banking sector.
Despite these pressures, HDFC Bank continues to benefit from its large customer base, diversified loan portfolio, and strong capital position, which have helped it navigate the transitional period post-merger more effectively than many peers.
Sector outlook brightens as rate cuts support lending
The broader Indian banking industry is anticipating a revival in credit growth, aided by a series of interest rate reductions by the Reserve Bank of India (RBI) this year.
Lower borrowing costs are expected to boost demand for loans across retail, housing, and business segments.
However, analysts caution that the rate cuts could compress margins further, as banks pass on lower rates to borrowers more quickly than they reduce deposit costs.
HDFC Bank’s shares have risen more than 13% in 2024, mirroring the gains seen in the broader banking index.
Investors appear optimistic about the lender’s long-term growth prospects, even as near-term profitability remains constrained by margin pressures.
With its strong balance sheet, improving asset quality, and sustained credit demand, HDFC Bank remains well-positioned to capitalize on India’s expanding financial landscape—though the challenge of balancing growth and profitability will likely define its next phase.
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