HDFC Bank Ltd.'s June-quarter earnings fell short of analysts' expectations as lower net interest margins and a sharp decline in other income weighed on operating profit, even as net profit rose on lower provisions.
Brokerages said the bank continued to deliver healthy loan and deposit growth, but softer loan yields, margin pressure and muted fee income limited earnings growth. They expect loan growth to remain resilient, while margin recovery will depend on funding costs easing and deposit conditions improving.
Net interest income rose 7% year-on-year to Rs. 33,534 crore, while net profit increased 5% to Rs. 19,060 crore. Other income fell 41%, leading to a 21% decline in operating profit.
Key management takeaways
- Expects advances growth to improve in the coming quarters.
- Said branch productivity remains among the best in the sector.
- Has focused on mobilising FCNR(B) deposits over the past month.
- Sees intense competition across both assets and liabilities.
- Continues to strengthen cybersecurity systems to counter AI-led threats.
- Is prioritising liquidity coverage ratio over the credit-deposit ratio.
- Sees a 40-50 basis-point opportunity for cost of funds to normalise over time.
- Said the borrowing mix remains elevated.
HDFC Bank Q1 Highlights (Standalone, YoY)
- Net interest income rose 7% to Rs. 33,534 crore from Rs. 31,438 crore.
- Other income fell 41% to Rs. 12,822 crore from Rs. 21,730 crore.
- Operating profit declined 21% to Rs. 28,168 crore from Rs. 35,734 crore.
- Provisions rose to Rs. 3,060 crore from Rs. 2,610 crore.
- Net profit increased 5% to Rs. 19,060 crore from Rs. 18,155 crore.
- Gross NPA ratio rose to 1.17% from 1.15% (QoQ).
- Net NPA ratio increased to 0.41% from 0.38% (QoQ).
- Net interest margin declined to 3.26% from 3.38% (QoQ).
- Credit cost increased to 0.40% from 0.35% (QoQ).
- Yield on advances eased to 7.7% from 7.8% (QoQ).
- Cost of funds remained unchanged at 4.4% (QoQ).
Management said it expects advances growth to improve, while competition remains intense across both loans and deposits. The bank continues to focus on liquidity coverage ratio rather than the credit-deposit ratio and sees a 40-50 basis-point opportunity for funding costs to normalise over time.
Here's what brokerages are saying after HDFC Bank announced Q1 results
Bernstein
- Maintained 'Outperform' with a target price of Rs. 1,150
- Said HDFC Bank delivered another steady quarter, supported by healthy loan and deposit growth.
- Noted loan growth remained strong, led by corporate and small and mid-market segments, while retail growth stayed subdued.
- Said net interest margin declined 12 basis points quarter-on-quarter because of lower loan yields and higher funding costs.
- Highlighted stable asset quality, with credit costs at 40 basis points and GNPA and NNPA broadly unchanged.
- Said operating efficiency helped offset weaker net operating income growth and supported profitability.
- Expects margin headwinds and elevated provisioning to continue weighing on earnings growth.
Citi
- Maintained 'Buy'; cut target price to Rs. 970 from Rs. 1,020
- Said June-quarter earnings missed expectations because of a 13-basis-point sequential decline in net interest margin.
- Noted fee income remained weak, while operating expenses and credit costs were broadly contained.
- Said agricultural slippages weighed on asset quality, although the non-agri portfolio remained resilient.
- Highlighted loan growth was driven by corporate, business banking and gold loans.
- Said deposits continued to grow steadily, although the CASA ratio declined.
- Cut FY27 and FY28 earnings estimates by 1%-2%.
- Reduced the target price to Rs. 970 from Rs. 1,020 while maintaining its Buy rating.
Kotak Securities
- Maintained 'Buy' with a target price of Rs. 1,050
- Said the downside appears limited, although near-term triggers remain absent.
- Said weak net interest margin performance resulted in muted earnings growth.
- Noted balance sheet transformation is visible, but the improvement has yet to translate into earnings.
- Said the bank's focus on loan growth in a tight deposit environment continues to delay margin expansion.
- Expects margin recovery to remain gradual as funding conditions improve.
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