HDFC Bank Margin Outlook In Focus As Analysts Diverge On Deposit Trends

HDFC Bank Ltd. remains a stock to watch closely, with both Macquarie and Morgan Stanley maintaining positive stances on India’s largest private lender ahead of its fourth quarter results.

While both firms acknowledge solid fundamentals and growth prospects, they offer slightly differing interpretations of the bank’s deposit performance — a key factor that could influence margin trajectory going forward.

Macquarie maintained an ‘outperform’ rating with a target price of Rs 2,300, but flagged deposit growth as a key concern. In its pre-quarter update for the last quarter of fiscal 2025, HDFC Bank reported deposit growth of Rs 1.50 lakh crore, below Macquarie’s expectations of Rs 1.70 lakh crore in net additions.

Despite the miss, this growth outperformed system-wide deposit growth of approximately 10%, with strong 20% year-on-year growth in term deposits, the brokerage said in a note on Friday.

Loan growth came in at 7.7% year-on-year, led by a 5.1% quarter-on-quarter increase in the commercial and rural banking segment. Retail loans grew 2.7% quarter-on-quarter, while wholesale lending showed signs of revival, the brokerage added.

Macquarie expects a gradual improvement in net interest margins as the bank transitions away from high-cost borrowings of the erstwhile HDFC Ltd. The loan-to-deposit ratio stood at 97%, improving 800 bps since financial year 2024, the brokerage noted.

Morgan Stanley also maintained an ‘overweight’ rating, with a target price of Rs 1,975, viewing deposit growth more favourably. Average deposits grew 16% year-on-year, while period-end deposits rose 14%, slightly moderating from the previous quarter, the brokerage added.

Loan growth (gross of IBPCs) was 8% year-on-year, with net growth (post-IBPCs) at 5.4%, an improvement from 3% in the prior quarter. CRB continued to outperform with 13% year-on-year growth, while corporate loans declined at a slower pace. Retail loans rose 9% year-on-year, the brokerage pointed in the note.

Morgan Stanley highlighted a 1.8 percentage point sequential improvement in the LDR to 97.4%. The firm expects investor focus to now shift toward margin performance, which will be closely scrutinised in the upcoming results on April 19.