HDFC Bank's loan growth will continue to improve going forward: CEO

Margins may fluctuate on a quarterly basis, but will stabilise over time, he said

After bringing down its elevated credit-deposit (CD) ratio by calibrating loan growth in FY25, HDFC Bank, India’s largest private sector lender, is now geared to grow its loan book and expects it to continue improving as overall demand picks up, said Sashidhar Jagdishan, managing director & chief executive officer of the bank.

 

He added that while the bank’s margins may fluctuate on a quarterly basis, they are expected to stabilise over time.

 

“…rate of growth on assets under management (AUM) has improved to 8 per cent in the quarter just ended (Q1FY26). Our growth engines are well geared to grow. And as we move forward, we expect our loan growth to continue to improve from here and remain confident of growing our advances of the system growth rate in FY26 and higher than the system in FY27”, Jagdishan said in an analyst call, following the bank’s Q1 earnings.

 

He added that apart from the balance sheet, other growth enablers remain customer centricity, technology, and the bank’s people.

 

“We have a clear cut ground up strategy in terms of how we will achieve our momentum from now on. We are coming from a very low growth because we had a compulsion to bring down our CD ratio rather quickly, which we did reasonably well last year. But now from that low, we have already seen momentum, although small, in Q1. I think it's playing out well and we should see this sequentially moving up over the next three quarters from now,” he said.

 

He said the bank’s net interest margin may see some fluctuation post the policy repo rate cut, but should stabilise over a period.

 

Commenting on the impact on the bank’s net interest margins, following the Reserve Bank of India (RBI) reducing its policy rate by 100 basis points (bps) between February and June, Jagdishan said, “…a large part of our asset side of the balance sheet is floating in nature, while the liability side is more or less fixed in nature. So this would be a headwind when the rate cycle is on a downward trend. This impact is dependent on the pace and depth of the rate cut. While we may see quarterly fluctuations in margins due to this lead lag impact, we expect to stabilise it over a period of time”. 

 

Net interest margin of HDFC Bank stood at 3.35 per cent in Q1 as compared to 3.46 per cent in the last quarter of the previous financial year, reflecting faster re-pricing of assets than deposits.

 

The bank reported a 12.2 per cent year-on-year (Y-o-Y) increase in net profit at ₹18,155 crore in the April-June quarter of FY26 (Q1FY26), despite a significant jump in provisions in the quarter, and modest growth in net interest income (NII).

 

In Q1, its gross advances rose 6.7 per cent Y-o-Y to ₹26.5 trillion, while advances under management grew 8.3 per cent Y-o-Y to ₹27.42 trillion. The bank had previously guided that it will grow its loan book in line with the industry growth in FY26, but will outpace the industry growth in FY27. Having said that, Q1’s loan growth of the bank was slower than industry growth, which, as per RBI’s latest data, is growing 9.5 per cent.

 

According to Jagdishan, the bank is seeing some amount of healthy demand from the rural side, and while there has been some fatigue in the premium urban consumption in the recent past, the festival season, which will start shortly, will have a reasonable amount of impetus on demand.  

 

“The fact that interest rates have come down, the fact that people would have now started to see savings arising out of the fiscal largesse that was given in the last budget, I think all that will play in with the convergence of the sentiments and the moods, which normally the Indian festivities normally bring about,” Jagdishan said, adding that on the MSME side, despite the uncertainties on the tariff front, the bank has seen fair amount of up-fronting of exports.

 

“So we do see a reasonable amount of buoyancy in some of the good customers in the MSME segment as well, which should continue even as we get into the second quarter or the second half of the year,” he stressed.

 

While the bank’s corporate book de-grew sequentially, and grew just 1.7 per cent Y-o-Y in Q1, Jagdishan said the bank will be participating in the working capital demands of the corporates with whom they are comfortable with.

 

“As regards corporates, I think they have been enjoying, in the last couple of months, reasonably benign interest rates. And obviously the system being flush with liquidity, the rates being offered to these AA and above corporates are pretty attractive,” he said, adding that while the bank is not seeing anything great on the private capex side as yet, they will surely participate in it.

 

The bank’s mortgage, which is one of the mainstays in its retail portfolio, following erstwhile HDFC Ltd. merger into the bank, grew by just 7 per cent Y-o-Y in Q1.

 

“Mortgages have seen intense competition from public sector banks. Having said that, I think some amount of participation, considering the brand and considering the fact that we are also trying to see how to optimise our cost of processing, we should be able to pick up some of the volumes during this festive period as well,” Jagdishan said.