HDFC Bank expects government reforms and technological efficiencies to speed up lending revival

Copyright © HT Digital Streams Limited All rights reserved. HDFC Bank’s standalone net profit rose nearly 11% year-on-year to ₹ ₹ 18,640 crore in the second quarter, while net interest income rose 5% year-on-year to ₹ 31,600 crore. lender expects the demand for loans to gain momentum in the second half of the financial year and beyond. HDFC Bank is poised for credit growth to accelerate over the next two years due to improving consumer demand on the back of supportive government policies and technology-driven efficiencies, managing director and CEO Sashidhar Jagdishan said on Saturday. With inflation cooling, GST cuts boosting disposable income, and expected interest rate cuts likely to reduce borrowing costs, the country’s largest private lender expects loan demand to gain momentum in the second half of the financial year and beyond. “The trio of tax benefits, GST reductions and interest rate cuts seem to be working as we see bottom-line economic activity visibly improving across customer and product segments. Against this backdrop, we have an opportunity to accelerate loan growth, which we have started doing from this quarter. We believe that this will sustain and continue, but of course we have to wait and see the bank’s earnings in September,” he said. Jagdiskwart said. Having deliberately slowed credit expansion following its merger with erstwhile parent Housing Development Finance Corporation Ltd to reduce its credit-deposit ratio from 110% to below 97%, the bank now expects to be in line with the system in FY26 and grow faster than the system in FY27, to regain market share, Srinathanivasan Vaidyan, CFO said. For the quarter ended September, the bank’s gross advances grew nearly 10% year-on-year to ₹27.692 billion and deposits rose more than 15% year-on-year to ₹27.1 trillion. For the banking sector as a whole, non-food credit grew 10% year-on-year as of September 19 and deposit growth was up 9.5%, according to Reserve Bank of India (RBI) data. The bank continues to grow deposits faster than the system to gain market share, Vaidyanathan said, adding that productivity per branch has improved sharply as new branches mature. Apart from banking on retail credit growth, HDFC Bank is also seeing a revival in demand for corporate loans, with wholesale advances rising 4.7% sequentially during the quarter and 6.4% y-o-y to ₹7.41 trillion. During the June quarter, this book shrank more than 1% quarter-on-quarter and grew 2% year-on-year. The bank said it selectively participated in working capital financing at “reasonable and good” spreads as corporate clients sought financing amid subdued bond market activity as yields rose during the quarter. Asked about the RBI’s move to allow acquisition financing by banks, management said they see an opportunity in this space. “It’s definitely going to be a win-win in terms of providing another product offering to our bouquet of services to our customers. And the second one is even for the customers, I believe it should reduce the cost of the transaction itself,” Jagdishan said. Key Metrics For the September quarter, HDFC Bank’s standalone net profit rose nearly 11% year-on-year to ₹ ₹ 18,640 crore, supported by healthy credit growth and stable asset quality. Net interest income increased 5% year-on-year to ₹31,600 crore, while core net interest margin came in at 3.27%, down from 3.35% a quarter ago. The bank expects NIMs to remain stable or slightly higher over the next 12-24 months as deposit repricing benefits flow through. According to Vaidyanathan, 70% of loans have floating interest rates and the passage of the RBI’s rate cut of 100 basis points has mostly been done. “For the most part it’s there by September. Some more, whatever the full quarter impact isn’t there, will flow through in December or so,” he said. “Deposit costs take about six quarters to fully reflect rate changes, and we’re already seeing an 18 basis point drop in the cost of funds,” he said. Asset quality of the bank remained robust, with gross non-performing assets ratio improving to 1.24% from 1.40% a quarter ago, while the net NPA ratio came in at 0.42% from 0.5% a quarter ago. The lender maintained a credit cost ratio of 0.51% and a capital adequacy ratio of 20%, giving it room to aggressively pursue growth. Technology at the core HDFC Bank continues to double down on technology and digital transformation, management said. Jagdishan said the bank had conducted “lighthouse experiments” using generative AI and automation to redesign processes, reduce turnaround times and improve customer experience. “We are setting up our own factory for emerging technology,” he said, adding that tangible benefits are expected in 18-24 months. The bank has ruled out job losses from AI adoption. “AI is not going to diminish [the number of] people. It’s going to shift talent from back-end to customer-facing and technology roles,” he said. 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