HDFC Bank Q1 Earnings Call Highlights
Key Points
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- Deposit growth stayed relatively strong for a Q1 period, with HDFC Bank gaining market share and improving branch productivity, though management said the CASA ratio remains below pre-merger levels and time deposits are growing faster than low-cost funds.
- Loan growth was broad-based across wholesale, MSME, and retail segments, with corporate loans up about 18% and business banking up 22.3%, while management said it expects to keep pushing advances as credit demand remains healthy.
- Margins remain under pressure from funding costs and a higher borrowing mix, but the bank said cost-of-funds improvement and a better loan mix should support longer-term recovery, alongside ongoing investments in technology, AI, and customer service.
HDFC Bank (NYSE:HDB) management told investors that the lender entered the first quarter of fiscal 2027 with improving business momentum, stronger branch productivity and continued market-share gains in deposits, while also acknowledging ongoing pressure from funding costs and a shifting deposit mix.
Chief Executive Officer Sashi Jagdishan opened the earnings call by noting that the bank had navigated “certain challenges over the last four months” while keeping its focus on customer needs and franchise expansion. He thanked employees, the board and Keki Mistry, who served as interim chairman, and welcomed newly appointed Chairman Rajiv Kumar. Jagdishan said Kumar’s appointment brought “a sense of stability” and reduced uncertainty for the institution.
Deposit Growth Remains a Key Focus
Jagdishan said deposit growth in the quarter remained “relatively better than the historical Q1 trends,” with HDFC Bank continuing to gain market share on both an incremental and stock basis. He also said branch productivity continued to improve as the bank realized benefits from investments made over the past five to six years.
Chief Financial Officer Srinivasan Vaidyanathan said the bank has more than 100 million customer relationships and is focused on improving “unit economics” by adding more accounts while keeping costs under control. He said household deposit growth in India remains among the lowest across deposit categories, which makes customer acquisition and distribution reach critical.
Management also discussed the bank’s current account and savings account, or CASA, trajectory. Jagdishan said the bank’s objective is to move closer to pre-merger CASA levels, noting levels around 38% after the merger and 40% before that. However, he said time deposit growth has been higher than low-cost funds growth in recent years, contributing to a lower CASA ratio.
Vaidyanathan added that time deposits also remain an opportunity, noting that only 14% of the bank’s customers currently have time deposits with HDFC Bank.
Margins Pressured, But Management Points to Long-Term Levers
Asked whether margins had bottomed, Vaidyanathan said the bank does not manage margins on a quarter-to-quarter basis and that a full-year view is more appropriate. He identified cost of funds as the largest opportunity for margin improvement, but cautioned that changes would not happen quickly.
Vaidyanathan said non-retail deposit costs remain elevated, while retail deposit costs have been relatively steady. He also said the bank’s borrowing mix remains around 11%, compared with an industry level of roughly 5% to 6%, and that maturities and balance-sheet growth should help reduce that proportion over time.
On the asset side, Vaidyanathan said the mix of loans will also matter for longer-term margins. He noted that retail loans make up about 52% of the bank’s loan mix, while management has historically viewed roughly 60% as a level that better mirrors the consumption component of India’s economy.
Management said cost of funds was broadly flat sequentially and down about 40 basis points year over year.
Loan Growth Broad-Based Across Wholesale, MSME and Retail
Jagdishan said the bank is “on the verge of pressing the pedal” on advances, adding that loan growth has been strong over recent quarters and that the trajectory continues. He said credit demand in the system is healthy, though competition remains intense, particularly in corporate lending where spreads are thin.
Management said wholesale and corporate loans grew about 18%, while business banking, described as the largest component of the MSME segment, grew 22.3%. The bank also participated in the ECLGS 5.0 scheme, with disbursements of close to INR 14,000 crore as of June 30.
In retail lending, management said disbursement growth was strong in the wheels business and in unsecured products such as personal loans and business loans. Mortgage disbursements grew close to 14% year over year, while some other retail disbursements grew by roughly 20%.
HDFC Bank also highlighted the FCNR(B) policy window as an opportunity. Jagdishan said the bank spent much of June completing documentation and approvals internally and with counterparty banks across jurisdictions. He declined to provide a specific mobilization target but said the bank aims to capture a “reasonably strong and significant market share” as activity picks up in July, August and September.
Technology, Efficiency and Customer Service Prioritized
Jagdishan repeatedly emphasized customer service and turnaround time as strategic priorities. He said the bank is measuring service delivery more granularly across the country and reimagining digital journeys and analytics to drive adoption and efficiency.
The CEO said HDFC Bank is “on the cusp” of using GenAI technologies in its processes, with several “lighthouse programs” expected to go into production during the year. He also said security remains a central part of the bank’s strategy and that management is exploring how AI can strengthen defense mechanisms.
Asked about whether the bank is underinvesting after keeping costs controlled, Jagdishan said the bank has made significant investments over the past five years in distribution, staffing and technology. He said distribution investment may be “slightly muted” for now, but technology investment will continue, particularly in security and AI.
Provisioning and Governance Updates
On expected credit loss rules due to take effect April 1, 2027, Vaidyanathan said the bank’s overall provisions appear “adequate and sufficient” for the new methodology. He said there may be some ongoing impact because of required provisioning floors, but he does not expect it to be material based on the bank’s current view.
Management also addressed board and leadership matters. Jagdishan said the board is considering steps related to adding another executive director and that “a fair amount of action” should be visible in a short time. On the managing director and CEO reappointment process, Vaidyanathan said the nomination and remuneration committee and the board are “fully seized of the matter” and that announcements will be made when conclusions are reached.
Looking ahead, Jagdishan cited weather-related risks such as El Niño and geopolitical tensions in West Asia, but said the country and the bank are prepared to weather potential challenges. He said HDFC Bank remains focused on customer engagement, technology-led efficiency and long-term franchise growth.
About HDFC Bank (NYSE:HDB)
HDFC Bank Limited is one of India's leading private sector banks, headquartered in Mumbai. Incorporated in 1994 and promoted by Housing Development Finance Corporation (HDFC), the bank provides a full range of banking and financial services to retail, small and medium-sized enterprises, and corporate customers. It is publicly listed and also accessible to international investors through American Depositary Receipts (ADRs) trading on the New York Stock Exchange under the symbol HDB.
The bank's core activities include retail banking (deposit accounts, personal loans, home loans, auto loans, and credit cards), commercial and corporate banking (working capital finance, term lending, trade finance and treasury services), and transaction banking (cash management and payment solutions).
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