HDFC Bank's loan growth in Q2 could dip below 10%: Macquarie Report

HDFC Bank has previously indicated that it will grow its advances at a slower pace than its deposits, as it seeks to bring down its elevated loan-deposit ratio to pre-merger levels

HDFC Bank’s loan growth on a year-on-year (Y-o-Y) basis could slip below 10 per cent in the second quarter of financial year 2025 due to base effect and sell-down of portfolios to manage loan-deposit ratio (LDR), said Macquarie analysts in a research report on Wednesday.

“Due to base effect (further run-downs of the corporate portfolio of erstwhile HDFC Ltd picked up in subsequent quarters), coupled with the sell-down, Q2FY25 loan growth could be less than 10% Y-o-Y, in our view,” the report said.

HDFC Bank has previously indicated that the bank will grow its advances at a slower pace than its deposit, as it seeks to bring down its elevated LDR to pre-merger levels. Erstwhile mortgage financier HDFC was merged with the bank with effect from July 1, 2023.

“HDFC Bank's LDR from a peak of approximately 110 per cent has already declined to 103.5 per cent,” it said, adding that the LDR is expected to come down further.

“This is in line with the bank's stated strategy of consolidation of the balance sheet and focus on margins and profitability in the medium term,” the report said.

In the post earning analyst call, the bank’s MD & CEO Sashidhar Jagdishan had stated that the bank is aiming to reduce its LDR “as quickly as possible” while maintaining its commitment to profitable growth.

“We are cognizant of the risks in the system and instead of being nudged on that, we want to do it ourselves because it makes economic sense to bring it down as quickly as possible,” Jagdishan had said in July.

However, he had not specified a timeframe within which the bank would reduce its CD ratio to pre-merger levels. “I would love to do it in one year. But it is not something that I can drop in one go. It’s not practical,” he had said.

“We expect net interest margins (NIMs) to improve a further 5 bps quarter–on–quarter (Q-o-Q) in Q2FY25 to 3.52 per cent compared to most other banks which may report flat to slightly declining margins,” the report said.

In Q1, HDFC Bank’s total advances grew 52.5 per cent Y-o-Y to Rs 24.63 trillion, while deposits grew 24.4 per cent Y-o-Y to Rs 23.71 trillion.