HDFC Bank To Face NIMs Pressure In H1 FY26, Says Citi

HDFC Bank Ltd. is expected to face pressure on net interest margins in the first half of the fiscal 2024-25 due to the repricing of its external benchmark lending rate portfolio, according to brokerage and research firm Citi.

The international research firm noted that while this will weigh on margins initially, the bank has levers that could partially offset the impact in the second half.

The brokerage house said that its discussions with the bank’s management reaffirmed its view that the gap in growth and return on equity between HDFC Bank and its peers is set to narrow, with the trend expected to become clearer in the financial year ending March 2026. The brokerage continues to list HDFC Bank as a top pick.

The bank has reiterated its aim to match system-level advances growth by March 2026, driven by SME, business banking, retail, and unsecured lending, without a drag from the corporate loan rundown, Citi said in a note.

Citi also highlighted HDFC Bank’s plans to grow deposits faster than the system by acquiring new customers and scaling up branch activity. The bank is focusing on increasing its current account savings account ratio. The pace of moderation in the loan-to-deposit ratio is expected to remain gradual, with the bank targeting a return to pre-merger levels by March 2027.

The bank expects operational efficiency to continue and has described recent allegations by LKMMT trustees as false, malicious, and defamatory. Citi maintains a ‘Buy’ rating on the stock.