HDFC Bank to reach pre-merger credit-deposit ratio in FY27, focus on expansion, distribution

In an earnings call following its March quarter results, chief financial officer Srinivasan Vaidyanathan said the bank will continue aligning its deposit rates with the broader market in a declining interest rate environment, while focusing on expanding its distribution network to gain deposit market share.

“We still remain competitively priced among the various large five banks. That means there is no particular rate related advantage on the savings deposits as such between us or peer banks,” Vaidyanathan said. “There’s no competitive differentiation that this offers, but we are confident that our distribution strength, customer addition and engagement should keep us going from a market share gaining point of view.”

Read this | Tight liquidity forced lenders to ramp up short-term borrowing in FY25

HDFC Bank’s CD ratio improved to 96.5% in the March-ended quarter, down from a post-merger peak of 110%, and 104.4% a year earlier. Vaidyanathan said as liquidity and economic growth improves, the bank is “well placed to grow in deposits and loans.”

On a standalone basis, India’s largest private sector lender reported a net profit of ₹17,616 crore for the March quarter, up from ₹16,512 crore a year earlier. Net interest income (NIM) rose 10.3% year-on-year to ₹32,070 crore, supported by a modest expansion in net interest margin to 3.5% and a 5.4% increase in gross advances.

Following two consecutive 25 basis point cuts by the Reserve Bank of India, HDFC Bank has led this cycle of savings rate reductions among large banks—lowering interest on savings account deposits by 25 basis points last week, and on fixed deposits by up to 50 basis points earlier this week. The rate moves come as the bank looks to manage funding costs while recalibrating its credit-deposit ratio to pre-merger levels.

Total deposits rose 14.1% year-on-year to ₹27.1 trillion as of 31 March 2025. Term deposits grew 20.3%, while CASA (current and savings account) deposits rose 3.9%, pushing the CASA ratio to 34.8%. The bank’s deposit market share stood at 11.1%, with its distribution footprint accounting for 6% of the industry total. Deposit accretion per branch surged to ₹300 crore, up from ₹80 crore last year.

“We continue to lead in gaining the market share,” Vaidyanathan said, noting the bank’s deepening reach in semi-urban and rural areas. “Our endeavour is to get to what we were pre-merger, when we typically operated between 85-90%.”

While deposit growth has taken the lead, loan growth is expected to align with system-level growth in FY26 after lagging in FY25. The bank expects to outpace the market in FY27, regaining share on the lending side.

To manage loan growth and funding, the bank will continue to securitize assets over the next three to five years. This should provide “scope for us to grow faster, keeping up with the market opportunity that will come so that we can take those loans to securitize and fund it in an optimised manner,” Vaidyanathan added.

Read this | Loan growth slows for banks in Q4 as liquidity stays tight, deposits lag

Gross advances rose 5.4% year-on-year to ₹26.4 trillion as of 31 March 2025. Retail loans grew 9%, while commercial and rural banking loans rose 12.8%. In contrast, corporate and other wholesale loans declined 3.6%.

Also read | HDFC Bank’s head of human resources on his way out

Mortgage loans accounted for 30% of the total book, with other retail loans comprising 19-20%, commercial and rural banking around 33%, and corporate and wholesale loans making up 16–17%, Vaidyanathan said. He added that the greatest growth potential currently lies in retail lending, given the segment’s relatively low credit penetration.

The bank’s physical network expanded to 9,455 branches and 21,139 ATMs across 4,150 cities, up from 8,738 branches and 20,938 ATMs in 4,065 cities a year earlier.