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Informist, Saturday, Oct. 18, 2025

 

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--HDFC Bank: NPA recoveries, upgrades jumped Q2 on one-time gain 
--CONTEXT: Comments by HDFC Bank mgmt at analyst concall post Q2 earnings 
--HDFC Bank: Regulatory changes will lead to improvement in capital ratios 
--HDFC Bank: Aim for high capital buffer as loan growth  to accelerate FY27 
--HDFC Bank:HDFC merger benefit to reflect more in 3-5 yr period post merger 
--CONTEXT: HDFC-HDFC Bank merger effective date was Jul 1, 2023 
--HDFC Bank: Seeing positivity, credit demand among small, mid enterprises 

 

By Aaryan Khanna and Srijita Bose

 

NEW DELHI/MUMBAI – HDFC Bank Ltd.'s recoveries and upgrades jumped from a quarter ago owing to a one-time reclassification of a single non-performing account. HDFC Bank's gross non-performing asset ratio declined by 16 basis points sequentially to 1.24% as of September-end, of which 10 bps was attributable to the single account, the bank's management said in a post-earnings conference call with analysts.

 

"There was an NPA (non-performing asset) which performed satisfactorily over two years and appropriate ratings were received and upgraded," the bank's Chief Financial Officer Srinivasan Vaidyanathan said on the call. This led to a reduction in the contingent buffer and counted as an upgrade in the bank's September quarter earnings. The non-performing account had been inherited from the merger of Housing Development Finance Corp. with HDFC Bank in July 2023, Vaidyanathan said. He described the gain as not recurring.

 

Sequentially, recoveries and upgrades rose 62% on quarter to INR 68 billion in Jul-Sept. Provisions fell 76% on quarter to INR 35 billion, as per the bank's financial results declared earlier in the day. HDFC Bank's net profit for the September quarter rose 11% on year and marginally on quarter to INR 186.41 billion, on a total income of INR 910.41 billion.

 

In the reporting quarter, the bank's capital to risk-weighted asset ratio improved marginally to 20.0%, well above the regulatory minimum and the highest in a bank of its size. This build-up occurred as the bank slowed down lending in FY25 to bring down its credit-deposit ratio following the merger with its erstwhile parent. The bank said the Reserve Bank of India's recently proposed regulations are likely to improve its capital ratios.

 

The regulator unveiled 21 changes on Oct. 1, a slew of draft and final regulations that are expected to boost banks' areas of business and loosen regulatory scrutiny. As an example, HDFC Bank said it was ready to enter the newly de-regulated area of financing mergers and acquisitions and already has the expertise to do so as the country's largest private-sector bank. Beyong its intention to allow the practice, the central bank has so far not brought out any circulars in this regard.

 

As for the expected credit loss norms, for which the RBI has brought out a draft regulation, the management said it has a proven track record of maintaining and declaring its provisions using the new measure. As per the RBI's draft norms on the expected credit loss framework, which are proposed to take effect in April 2027, banks will have to set aside funds for bad loans on a future basis, against the as-on-date accounting currently prevalent. However, the bank's pure expected credit loss advantages may get nullified and it may have to increase its provisions, according to the fine print in the draft norms, the management said. The bank is awaiting the final norms to give more guidance on accounting under this measure.

 

The management said retained earnings added about 60 bps to capital adequacy in the September quarter, balancing what loan growth ate into. This is likely to continue in the remainder of the financial year 2025-26 (Apr-Mar), but the bank will chew through capital beginning FY27 when it will stragetically aim to increase its loan growth to an above-industry pace. It aims to have a high capital buffer so as to annually bring down its capital adequacy by around 60-70 bps for three to four years without being worried about raising more funds, the management said. 

 

"Having said that, if there are any opportunities that arise in terms of other options that are available to sort of delight shareholders, we would be more than happy to do so," Managing Director and Chief Executive Officer Sashidhar Jagadishan told analysts on the call. "We will keep exploring such options."

 

The bank's top executives were reserved about gains already made from the merger with HDFC, which took effect Jul. 1, 2023. The bank has been able to bring down sanction times and expand its branch network but has spent the past year correcting processes and identifying a target market in the mortgage business. The combined entity, as HDFC Bank, will look to go all guns blazing to lend in that vertical starting FY27, the management said.

 

As for credit cards, the bank added 1.5 million new cards in the September quarter but was cautious of some spending categories, which had limited growth in this portfolio. It was not keen to extend credit lines to revolver customers, who maintain a loan balance on the card from month to month.

 

The management was upbeat on lending to small and medium enterprises and said it saw positivity and credit demand from the segment on the ground during the festival season and after the government cut goods and services tax rates. The change in indirect taxes is expected to boost consumption.

 

HDFC Bank's gross advances were up 9.9% on year to INR 27.69 trillion as on Sept. 30, it said in its presentation for investors. Small and mid-market loans grew 17.0% on year to INR 5.72 trillion. In the gold loan segment, the bank was looking to grow its business steadily on year as the loans are "pretty rich" and higher than the weighted average yield on its retail book, the management said.

 

"Whilst I do appreciate that we need to wait and watch whether this is sustained even beyond the festive period, but there is a fair amount of optimism in most of us out here to say that this will be sustained," Jagadishan said. "The moment we hit the trajectory that we have laid out for ourselves, that is in FY27, we will start to grow faster than the system (in terms of loans)."  End

 

Edited by Rajeev Pai

 

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