The largest private sector lender, HDFC Bank, is likely to post lower single-digit growth in net profit for the quarter ended December due to slower credit growth and higher operating expenditures, as the lender focuses more on expanding its branch franchise, analysts say. The bank will report its Q3FY25 results on Wednesday.
“Slower credit growth and elevated opex, as the bank continues to build franchisees, could keep earnings in check. Deposit growth QoQ (quarter-on-quarter) and margin sustenance shall remain the key monitorables,” analysts at Emkay Global Financial Services said.
Provisional figures
To be sure, according to the provisional Q3FY25 numbers, HDFC Bank’s overall advances rose 3 per cent year-on-year (y-o-y) and 0.9 per cent quarter-on-quarter (q-o-q) to Rs 25.42 lakh crore, while deposits were up 16 per cent y-o-y and 3 per cent q-o-q at Rs 25.63 lakh crore.
The bank’s MD & CEO Sashidhar Jagdishan had said in a post-Q2 results analyst call that the lender would post lower loan growth than average banking sector credit growth in FY25, grow loans on par with industry in FY26, and post higher than industry-level credit growth in FY27.
“Deposit growth (of HDFC Bank) will be better than credit growth helping improve credit-deposit ratio (CD). Credit growth is significantly below industry growth and margins are likely to remain stable QoQ with a slight positive bias,” said Axis Securities in a report.
The bank management’s commentary on deposit accretion and resultant credit growth, along with margin improvement trajectory here on, as expected, would remain key monitorable for the bank, it said.
Stable asset quality, NIM
According to Motilal Oswal, HDFC Bank’s asset quality remains strong, with gross and net bad loan ratio at 1.4 per cent and 0.4 per cent, respectively. A robust provision buffer amounting to 1.1 per cent of loans offers comfort against potential credit risks.
Motilal Oswal said the bank’s margins are stabilising, with net interest margin (NIM) improving to 3.46 per cent in 2QFY25. The bank expects further recovery as erstwhile HDFC’s high-cost borrowings mature and the mix shifts toward high-yielding assets. NIM is projected at 3.6 percent by FY27, Motilal Oswal said.
“HDFCB is positioned to deliver steady growth and profitability, supported by strategic liability management, margin recovery, and a strong focus on asset quality. We estimate RoA/RoE at 1.9%/14.9% in FY27. The standalone bank trades at 2.3x FY26E ABV,” it said.
