Senior management of HDFC Bank, the country’s largest private-sector lender, told investors during non-deal roadshows (NDR) that they are witnessing strong growth momentum in the economy following the rationalisation of goods and services tax (GST) rates.
Also, there are early signs of private capex picking up as capacity utilisation levels have been improving, and in some sectors, it has topped over 80 per cent, after being in the range of 70 per cent for a long time.
Additionally, the senior management of the bank has also retained loan growth guidance for the financial year 2026-27 (FY27) saying that the bank will grow its loan book faster than the system, after almost two years of consciously calibrating its loan growth to bring down the elevated credit-deposit (CD) ratio from the peak of 110 per cent during the time of its merger with HDFC Ltd.
In 2024-25 (FY25), the bank grew its loan book slower than the system growth, and focused on shoring up its deposit base. In FY26, the bank has guided that it will grow its loan book in tandem with the system’s loan growth.
The commentary of the management was captured by Macquarie Capital in a report.
Following the Q2FY26 earnings, managing director and CEO of the bank, had highlighted that the triad of tax benefits, the GST cut, and the interest rate cut seems to be working as the economic activity was visibly improving across customer and product sectors.
“In this background, we have an opportunity to activate loan growth, which is what we have started to do from this quarter. We believe that this will sustain and continue, but of course, we have to wait and watch,” he said in mid-October.
In September this year, the GST council rationalised GST rates on most products and services to give up a leg to consumption in the country, which was weighing on the GDP growth.
Additionally, the bank’s management has guided that as it replaces the borrowings of erstwhile HDFC Ltd, which got merged into the bank back in July 2023, with deposits, and as the deposits are repriced downwards over the next four quarters because of the 100 basis points (bps) rate cut by the Reserve Bank of India (RBI), the bank’s margins could improve going forward, according to Macquarie Capital’s report.
HDFC Bank’s net interest margin (NIM)– a measure of profitability of banks — stood at 3.3 per cent in Q2FY26, compared to 3.5 per cent in the same period a year ago, and 3.4 per cent in the previous quarter.
Meanwhile, according to the report, the bank’s management has also guided that the credit-deposit ratio of the bank, which was a major constraint for the bank to grow its loan book, will remain a tad above 90 per cent, and may not necessarily fall below 90 per cent. The bank’s CD ratio had reached a peak of 110 per cent and since then it has been bringing down its CD ratio by calibrating its loan growth.
“On the expected credit loss (ECL) transition, management argued that it is well-placed considering its prudent provisioning policy, as well as contingent provisions, and doesn’t foresee any major impact due to the new ECL norms,” the report said, adding that HDFC Bank is poised to see a strong 18-20 per cent earnings per share (EPS) compounded annual growth rate (CAGR) over the next two years driven by improving loan growth and margins.
