HDFCBANK - HDFC Bank Ltd. Share Price

The management's outlook for HDFC Bank emphasizes strategic balance sheet optimization, stable asset quality, and calibrated growth amid macroeconomic and regulatory dynamics. Key points include:

1. Deposit-Loan Dynamics: Accelerated reduction of the Loan-to-Deposit Ratio (LDR) to mid/high-80s (from 110% post-merger) over 2"“3 years. Deposit growth (15% YoY) remains a priority, with retail deposits contributing ~84%.

2. Credit Growth Strategy:

   • Near-term moderation: FY25 growth to lag system average; alignment with industry by FY26; outperformance by FY27.
   • Segmental focus: Mortgages and priority-sector lending (16"“20% growth) emphasized; cautious underwriting in unsecured retail and large corporate loans due to pricing pressure.

3. Margins & Profitability: Net Interest Margin (NIM) stable at 3.45"“3.5% (3.46% in Q2). Adjusted PAT growth at ~17% (excluding one-time tax benefits).

4. Asset Quality: Gross NPA stable at 1.4%; retail GNPA at 0.8%. Contingent provisions adjusted post-AIF regulatory clarity.

5. Liquidity: Liquidity Coverage Ratio (LCR) elevated (~128%) due to deposit momentum and cautious liquidity management; aligns with regulatory preparedness and balance sheet resilience.

6. Regulatory & Market Risks: Monitoring draft RBI guidelines (e.g., group lending norms). HDB Financial's IPO timeline remains on track (targeted by Sept 2025).

7. Operational Initiatives: Branch expansion continues (~240 added in Q2) for customer acquisition. Fee income growth (17% YoY) driven by third-party products and retail segments.

Outlook underscores disciplined growth, liquidity buffers, and readiness to capitalize on cyclical recovery while maintaining credit discipline.

What were the major questions asked and their answers?

Question 1: "My first question is on fee. So, it's grown strongly. Is there some securitization income in fees? And if you could also refresh us with the accounting for any securitization, as in where it should come? That's my first question. And my second question is on movement of contingent provision. So what kind or what class of loans would they have been used for, because I think the contingent provision looks lower Q-o-Q?"
Answer: Fee growth (17% YoY) was driven by third-party products (32% YoY) and retail segments (15% YoY), with no impact from securitization income (amortized over loan life). Contingent provisions decreased due to regulatory clarifications on AIF lending, requiring proportional provisioning instead of 100% coverage, leading to adjustments.

Question 2: "So, the question is on RBI's draft circular in terms of the overlap in lending of group entities. So, what do you think should be the impact on HDB Financial and maybe till the time there is the final guidelines, would it any ways impact the listing of the HDB Financial that is being planned and that is required as per the regulatory requirement, yes?"
Answer: HDB Financial operates under RBI regulations with no arbitrage vs. the bank. The draft circular's impact remains uncertain pending feedback. The IPO process for HDB continues as planned, adhering to regulatory timelines (target: September 2025).

Question 3: "So, you indicated in terms of how we should look at the overall growth compared to that of the system averages. But when we look between our own loan and deposit growth, the way we have been maybe at least contracting the LDR, till what level should we assume that we'll be so aggressive in getting the LDRs down?"
Answer: Accelerating LDR reduction to pre-merger levels (~86-87%) over 2-3 years vs. earlier 4-5 years. Prioritizing retail/mortgage growth while moderating larger corporate loans due to pricing sensitivity.

Question 4: "The first is on the priority sector loans. Maybe if you can share some more detail on how much are we meeting organically?... And the second question is about the non-mortgage retail that you mentioned, do we envisage us reaccelerating this and start gaining market share again?"
Answer: Priority sector (PSL) organic growth focuses on small farmers/weaker sections (~9-10% of target). Non-mortgage retail growth (10% YoY) is calibrated to credit quality; market leadership in segments like cards/auto remains stable.

Question 5: "Incrementally, are the bank's loan yields on par with peers, or are we still seeing a lower yield because of our conservative stance on underwriting?"
Answer: Mortgage yields align with private peers (~8.8-8.9%), while unsecured retail pricing reflects risk-based models. Corporate loan spreads face pressure due to bond-market divergence, prioritizing lifecycle credit costs.

Question 6: "First is on the trajectory of the liquidity coverage ratio. So, I wanted to understand, we have been inching up that higher... So, is that something that you are taking into our assumptions and pushing this LCR higher?"
Answer: LCR (128%) is elevated due to strong deposit inflows and slower loan growth. Future adjustments depend on regulatory finalization of draft liquidity guidelines and deposit/credit trends.

Question 7: "With faster normalization in the LDR, we are generating excess liquidity... So, do you still see those prepayment optionalities available in the quarters to come by?"
Answer: Prepaying legacy HDFC Ltd. borrowings is limited due to non-callable terms. Excess liquidity supports future growth and regulatory compliance, with optionality to reduce borrowings if feasible.

Question 8: "The question is on the loan yields for the bank... Going forward, there will be a repo cut at some point and that will sort of drag it down. What can you do to offset that?"
Answer: NIM stability (3.45-3.5%) relies on duration-matching and liquidity normalization. Margin range retention is expected despite rate cuts, aided by potential LCR reduction and deposit repricing.

Question 9: "Can you share the loans that are linked to repo, EBLR, MCLR and fixed rate?"
Answer: ~70% of loans are floating (EBLR-linked), with minimal MCLR exposure. Corporate loans include T-bill/MCLR links, while mortgages/retail are primarily repo-linked.

Question 10: "How would you optimize this? If you build up too much liquidity, does that give you a little bit of room to grow your loans a little bit for 1 quarter until the optionality on the borrowing plays out?"
Answer: Liquidity accumulation reflects deliberate deposit growth and loan calibration. Excess liquidity positions the bank for future growth opportunities while maintaining balance-sheet resilience.