HDFC Bank eyes faster loan growth, says high credit-deposit ratio not a constraint

HDFC Bank has reiterated its intent to accelerate loan growth and deepen its participation in India’s credit cycle, saying its relatively elevated credit-deposit (CD) ratio does not constrain expansion.

The CD ratio remains an important metric for sustainable profitability, but it needs to be viewed over a longer horizon rather than on a quarter-to-quarter basis, chief financial officer Srinivasan Vaidyanathan said during the bank’s December quarter (Q3 FY26) earnings call on Saturday.

India’s largest private-sector bank’s CD ratio touched 99% as of December-end against 98% a quarter ago. Ever since its merger with the erstwhile Housing Development Finance Corp, the bank has consistently maintained its guidance to reduce the CD ratio to 90% in the near term.

“I'd like to say that in the current scenario, we don't think that we are constrained by CD ratio because we know that directionally we are working towards moving it down. Quarter to quarter moving up or down is perfectly fine but when you look at an annual basis, the objective is to keep moving it down as we go along,” Vaidyanathan said. He said the aim is to grow in line with the system in the current financial year and faster than the system thereafter.

The lender’s gross advances rose 12% on year in Q3 to ₹28.446 trillion and deposits also rose nearly 12% on year to ₹28.601 trillion.

On margins, Vaidyanathan refrained from offering a numerical outlook but said the first 100 basis points repo rate cut by the Reserve Bank of India has been factored in but the last 25 bps cut which took place last month is not fully factored in yet. “... some of that is factored in in the December quarter and some of that, between one to three months, will start to flow in at the repricing cycle. So some will come,” he said.

NIM expands to to 3.35%

During the December quarter, the bank’s net interest margin on total assets expanded to 3.35% as against 3.27% a quarter ago and those on interest earning assets improved to 3.51% from 3.40% in the prior quarter. Its net interest income also rose over 6% on year to ₹326 billion.

The bank’s cost of funds declined by around 10-11 basis points, a trend that is expected to continue as earlier policy rate cuts get transmitted, Vaidyanathan said.

He laid out three key drivers that will shape net interest margins going forward: cost of funds, CASA trends, and borrowings. He explained that time deposit repricing lags asset repricing significantly, with changes in deposit rates flowing through over four to five quarters.

He also pointed to the potential for an improvement in CASA as interest rates decline. “As the rate starts to go down… there will be more propensity for savings accounts to pick up,” he said, citing evidence from previous rate cycles.

Borrowings, which currently account for about 13% of HDFC Bank’s liability mix–higher than its historical average–are another lever for margin improvement as maturities roll off and the differential between borrowing and deposit costs narrows.

Separately, the bank remains focused on expanding its physical footprint, with plans to continue adding branches. With around 9,600 branches accounting for just 6% of the country’s total branch network, the management said branch-led growth remains a key enabler for deposits, retail loans, and deeper customer relationships.