Earnings Outlook
Slow loan growth, flat NIM to cap HDFC Bank profit growth
This story was originally published at 19:59 IST on 18 April 2025
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By Kabir Sharma
MUMBAI – Lower than industry loan growth and a flat net interest margin are likely to limit the growth of HDFC Bank's net profit for the Jan-Mar quarter as it addresses post-merger headwinds, including a high credit-deposit ratio and high cost of borrowings. The mammoth amongst the private sector banks may also have higher provisions in the latest quarter which will also cap rise in the bottom line.
According to the average of estimates from 16 brokerages, HDFC Bank is expected to report a net profit of INR 171.07 billion for the March quarter, up 3.6% on year on the back of steady growth in its net interest income. Sequentially, the bank is expected to report a 2.2% increase in its bottom line.
"The headline reported numbers were better-than-expected on loan growth but weaker than industry average reflecting the changes that they are undertaking to improve their CD (credit-deposit) ratio," Kotak Institutional Equities said in a note. The bank aims to bring down its credit-deposit ratio to pre-merger levels of 85%-87%, the bank's management had said in a post earning press conference in January. The current credit-deposit ratio is around 97%.
The bank's gross advances rose around 5.4% on year to INR 26.44 trillion as of Mar. 31, according to data released earlier this month. On a quarterly basis, the bank's gross advances grew 4%. Deposits continued to outpace loans and rose 14.1% to INR 27.15 trillion as of Mar. 31.
Despite the correction seen in the equity markets in 2025, shares of HDFC Bank have risen 13.4% since it announced its December quarter earnings in January. The bank is scheduled to report its Jan-Mar earnings on Saturday. On Thursday, its shares ended at INR 1,906.7 on the National Stock Exchange, up 1.5% from the previous close.
Brokerages expect the bank to report a modest 7.8% on year increase in net interest income to INR 313.47 billion. "NII growth will be slightly slower than average loan growth due to fall in yield on advances outpacing cost of deposits," YES Securities said in a report.
The net interest margin, the difference between the interest income earned from lending and investments, and the interest expense paid on liabilities such as deposits, is expected to remain stable sequentially, brokerages said. "NIMs are stabilizing at 3.43% (as of Oct-Dec), Motilal Oswal Financial Services said. As high-cost borrowings run off and the loan mix shifts toward higher-yielding assets, NIMs are projected to reach 3.5-3.6% by FY27 (2026-27)."
An uptick in provisions due to ageing and prudent accounting practices is also expected to weigh on the bank's bottom line, brokerages said. The bank made provisions totalling INR 31.54 billion for the December quarter, which was 16.8% higher than those made in the September quarter. However, total provisions were down 25.2% on an annual basis.
While some brokerages expect the asset quality of the bank to improve slightly, others see it remaining broadly stable when compared to the last quarter. The gross non-performing asset ratio increased to 1.42% as on Dec. 31 as compared to 1.36% a quarter ago and 1.26% a year ago. The net NPA ratio also increased to 0.46% as on Dec. 31 compared to 0.41% a quarter ago and 0.31% a year ago.
Management comments on margins and expected credit growth will be the key metrics to monitor, brokerages said.
Following are the Jan-Mar earnings estimates for HDFC Bank based on reports from 16 brokerage firms in descending order by the estimate of net profit:
Brokerage | Net sales (INR million) | Net Profit (INR million) |
Nirmal Bang Equities Pvt. Ltd. | 3,22,243.00 | 1,69,935.00 |
Nomura Equity Research | 3,16,700.00 | 1,72,000.00 |
Emkay Global Financial Services Ltd. | 3,16,416.00 | 1,71,133.00 |
IIFL Capital Services Ltd. | 3,16,400.00 | 1,76,500.00 |
Prabhudas Lilladher Pvt. Ltd. | 3,16,357.00 | 1,73,515.00 |
IDBI Capital Market Services Ltd. | 3,15,292.00 | 1,73,979.00 |
Kotak Institutional Equities | 3,15,286.00 | 1,74,186.00 |
Elara Securities (India) Pvt. Ltd. | 3,13,331.00 | 1,69,178.00 |
Equirus Securities Pvt. Ltd. | 3,12,693.00 | 1,69,778.00 |
Dolat Capital Market Pvt. Ltd. | 3,12,565.00 | 1,72,654.00 |
Anand Rathi Share and Stock Brokers Ltd. | 3,11,871.00 | 1,74,199.00 |
YES Securities (India) Ltd. | 3,10,783.00 | 1,66,237.00 |
ICICI Securities Ltd. | 3,09,410.00 | 1,65,074.00 |
PhillipCapital (India) Pvt. Ltd. | 3,08,122.00 | 1,73,304.00 |
Motilal Oswal Financial Services Ltd. | 3,06,688.00 | 1,70,342.00 |
AVERAGE | 3,13,469.81 | 1,71,070.88 |
End
Edited by Ashish Shirke
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