Most analysts hiked the target price for the HDFC Bank Ltd. while maintaining the stock rating as the private lender surprised the street with better-than-expected performance for the first quarter.
Key positives from HDFC Bank's first-quarter earnings were improved growth in loans and deposits, a lower reduction in net interest margin, and stable asset quality, Jefferies said. The private lender remained Jefferies' top pick in the segment as the brokerage expects further improvement.
HDFC Bank reported that its loan grew 7% on the year during April–June, while deposits grew 16% on the year, Jefferies said in a report. Business, banking, and automobile segments led the growth in loans.
The private lender is expecting no risk in its asset quality while it increased its buffer using the proceeds from HDB Financial's initial public offering, according to Bernstein. The lender is expecting to drive growth across rural, urban, and MSME and corporate loan segments because of monetary and fiscal stimulus.
HDFC Bank Q1FY26 (Standalone)
Net interest income stood at Rs 31,438 crore, compared to Rs 29,837 crore year-on-year, marking a 5% increase YoY but a 2% decline quarter-on-quarter (QoQ).
Other income (excluding one-offs) was Rs 12,601 crore, up 18% YoY from Rs 10,668 crore, and up 5% QoQ.
Total other income reached Rs 21,729 crore, showing a significant 104% increase YoY from Rs 10,668 crore and an 81% increase QoQ.
Operating expenses (Opex) were Rs 17,434 crore, up 5% YoY from Rs 16,620 crore, and down 1% QoQ.
Operating profit came in at Rs 35,734 crore, surging 50% YoY from Rs 23,885 crore, and up 35% QoQ.
Provisions stood at Rs 14,442 crore, increasing 352% QoQ compared to Rs 3,192 crore.
HDFC Bank made a floating provision of Rs 9,000 crore in Q1FY26.
Profit After Tax (PAT) was Rs 18,155 crore, up 12% YoY from Rs 16,174 crore, and up 3% QoQ.
The Gross Non-Performing Asset (NPA) ratio was 1.4%, an increase of 7 basis points (bps) QoQ from 1.33%.
The Net NPA ratio was 0.47%, an increase of 4 bps QoQ from 0.43%.
HDFC Bank beat CLSA's estimates by delivering only an 11-basis-point reduction in net interest margin against a 15 bps expectation. Another positive from the first quarter results was that HDFC Bank is able to keep its operating expenditure flat on a sequential basis.
CLSA expects that the HDFC Bank will deliver 11% loan growth in financial year 2026 and 15–16% growth thereafter. For the present financial year, CLSA is looking at 10-bps NIM moderation.
HDFC Bank gained Rs 9,100 crore from the initial public offer of its subsidiary HDB Financial in the first quarter. The private lender used most of the IPO proceeds for a buffer, CLSA said.
HDFC Bank reported a slight beat on earnings estimates due to a tax reversal, Motilal Oswal Financial Services said. The brokerage expects that the HDFC Bank will likely deliver a 1.9% return on assets and a 14.9% return on equity for the financial year 2027.
A gradual reduction in high-cost borrowings, along with an improvement in operating leverage and provision buffer, will likely support HDFC Bank's return ratios over the coming years, the brokerage said.
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