CD ratio cut won't be as steep in FY26: HDFC Bank MD & CEO Jagdishan

CD ratio of HDFC Bank to return to pre-merger levels (85-90 per cent) in FY27

HDFC Bank, which has been aggressively bringing down its credit–deposit (CD) ratio over the past year by growing its loan book at a slower pace than the industry average, has indicated that the adjustment in CD ratio will henceforth not be as ‘steep.’

 

The bank, in FY26, plans to grow its loan book in line with the industry average.

 

The CD ratio is expected to remain on a downward trajectory and return to pre-merger levels of 85-90 per cent by FY27.

 

“Our credit-deposit ratio has been brought down from the highs at the time of merger, which was at 110 per cent to around 96 per cent as of March 2025. Our deposits have grown faster than the system, and also faster than our loans. Next year, in line with what we had committed, the adjustment in CD ratio will not be so steep, supporting loan growth for the bank. It will be on a downward path,” said Sashidhar Jagdishan, managing director (MD) and chief executive officer (CEO), HDFC Bank, in a post earnings’ analyst call.

 

HDFC Bank historically operated with a CD ratio in the range of 85–90 per cent prior to merger with HDFC Ltd, which was completed on July 1, 2023, creating a financial behemoth. The merger added a large pool of loans to its portfolio but a much smaller amount of deposits. As a result, the bank’s CD ratio surged to 110 per cent, prompting efforts to gradually bring it down.

 

In the bank’s FY24 annual report, released in July 2024, Jagdishan, in his address to shareholders, said that HDFC Bank would grow its advances at a slower pace than deposits in order to return to the elevated CD ratio during pre-merger. 

Also Read: HDFC Bank Q4FY25 results

 

Later, during an analyst call following the bank’s Q2FY25 earnings, Jagdishan reiterated this stance.

 

He said the bank aims to bring down the CD ratio faster than previously anticipated, and therefore, will grow its loan book at a pace slower than the industry average in FY25.

 

According to the bank’s Q4FY25 earnings report, its end of period advances under management grew 7.7 per cent year-on-year (Y-o-Y) to ₹27.73 trillion. 

 

According to Reserve Bank of India (RBI) data, the pace of bank credit expansion moderated sharply to 11 per cent in FY25 from 20.2 per cent in FY24. This is owing to several reasons, including higher base effect, regulatory actions like higher risk weights to signal stress in retail loans, the challenge of raising deposits for extending loans, and the elevated CD ratio of major private sector banks.

 

“CD ratio will come down to the pre-merger levels (85–90 per cent) in FY27. We saw loan growth in FY25 to be lower than the previous financial year for the industry. We took that opportunity and decelerated our loan growth. So, we grew at 7.7 per cent Y-o-Y. We have also indicated that in FY26, subject to appropriate pricing, we will be growing at the market rate,” said Srinivasan Vaidyanathan, chief financial officer (CFO), HDFC Bank, in a post earnings’ call.

 

“In the recent quarter that went by (Q4FY25), our sequential growth was 3.3 per cent, while annualised will come to 12–13 per cent. We do expect that FY27 is when the CD ratio will come below the 90 per cent mark. We continue to power on to get the right kind of deposits to keep the leadership position in gaining market share in deposits,” Vaidyanathan said.  

 

Further, according to Vaidyanathan, while the bank is present in all segments and geographies, it would focus more on retail to accelerate its credit growth in FY26.

 

“We have a presence across customer segments and geographies. The opportunity for retail growth is significantly higher than in any other segment. Large corporate clients and high-ticket borrowers can directly tap the capital market in the form of debt or equity. However, the retail segment offers the greatest potential, driven by relatively-low credit penetration,” he said.

 

In Q4FY25, HDFC Bank reported a standalone net profit of ₹17,616 crore, up 6.7 per cent Y-o-Y.

 

Net interest income, the difference between interest earned and paid, rose 4.6 per cent to ₹32,065.8 crore. Other income stood at ₹12,003 crore.

 

The bank reported a net interest margin (NIM) of 3.54 per cent on total assets, and 3.73 per cent on earning assets. NIM is the measure of profitability of banks. 

 

Provisions and contingencies dropped 76 per cent Y-o-Y to ₹3,193 crore in Q4FY25.

 

The lender reported improvement in asset quality as gross non-performing asset (NPA) ratio at the end of Q4FY25 dropped 9 basis points (bps) over Q3FY25 to 1.33 per cent. Net NPAs stood at 0.43 per cent.