HDFC Bank Q2 25/26 Earnings Report

HDFC Bank EPS Results

• Actual EPS: $0.44
• Consensus EPS: $0.36
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: N/A

HDFC Bank Revenue Results

• Actual Revenue: $4.95 billion
• Expected Revenue: $4.98 billion
• Beat/Miss: Missed by -$30.51 million
• YoY Revenue Growth: N/A

HDFC Bank Announcement Details

• Quarter: Q2 25/26
• Date: 10/18/2025
• Time: Before Market Opens
• Conference Call Date: Saturday, October 18, 2025
• Conference Call Time: 8:30AM ET

HDFC Bank (NYSE:HDB) is a leading Indian private sector bank established in August 1994 and commencing operations in January 1995. Headquartered in Mumbai, the institution was originally promoted by the Housing Development Finance Corporation (HDFC) to provide comprehensive banking and financial services. Over the years, the bank has evolved into a universal banking franchise, offering a wide range of products to individuals, small and medium enterprises, and large corporations.

The bank’s core business activities are organized into retail banking, wholesale banking and treasury operations. In retail banking, HDFC Bank offers savings and current accounts, fixed deposits, home and auto loans, credit and debit cards, and wealth management services. Its wholesale banking division caters to corporate clients with working capital finance, term loans, trade services, cash management, and structured finance. The treasury function manages the bank’s investments in government securities, foreign exchange, derivatives and other money market instruments to optimize liquidity and risk-adjusted returns.

HDFC Bank has built one of the largest branch and ATM networks in India, serving urban and rural markets with over 5,900 branches and 17,700 ATMs nationwide. The bank also maintains international offices and branches in Bahrain, Dubai, Hong Kong, London and Singapore, supporting cross-border transactions and global treasury operations. Embracing digital transformation, HDFC Bank offers robust online and mobile banking platforms, enabling customers to access banking services, make payments and manage investments from anywhere.

Corporate governance is overseen by Chairman Deepak S. Parekh, a veteran of India’s financial sector, with Sashidhar Jagdishan serving as Managing Director and Chief Executive Officer. Under their leadership, the bank has focused on expanding its digital footprint, enhancing customer experience and upholding prudent risk-management practices. HDFC Bank’s commitment to innovation and broad-based financial inclusion has positioned it as a pivotal player in India’s banking industry.

HDFC Bank Q2 25/26 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Loan growth picked up across segments with market‑share gains in deposits; management plans to grow in line with the system this year and faster in FY27 and is targeting an LDR decline from ~96% to below 90%, supporting medium‑term franchise expansion.
• Neutral Sentiment: Core margins were compressed by about 8 bps this quarter from front‑loaded asset repricing, while cost of funds fell roughly 18–20 bps; management expects additional deposit repricing to provide NIM tailwinds over the next 6–12 months if rates stay stable.
• Positive Sentiment: Asset quality remains healthy with stable early indicators; recoveries and rating upgrades contributed roughly 10 bps of gross NPA improvement, though management called that element non‑recurring.
• Negative Sentiment: The bank strengthened its reserves by adding about Rs 1,600 crore of contingent provisions and ~Rs 600 crore of general provisions this quarter, which is precautionary but will weigh on near‑term earnings.

Presentation

[Operator]

Good day, and welcome to HDFC Bank Limited Q2 FY 2026 earnings conference call. As a reminder, all participant lines will be in the listening mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you, and over to you, Mr. Vaidyanathan.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Thank you, Neera. Good evening, and welcome to all the participants on a very busy day. Without much ado, let me get to our CEO and MD, Sashidhar Jagdishan, for his opening remarks before we get on.

[Operator]

In light of that, please do.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

We also have Kaizad Bharucha, our Deputy Managing Director. We will also get him at some point. Yeah, please, Sashi, over to you.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Good evening, friends. First, let me wish all of you [Foreign language]. Let me start with the macro. Global outlook remains very volatile, thanks to the uncertainty related to tariffs and immigration policies. However, the domestic economy appears to be getting stronger. The triad of fiscal and monetary measures, whether it is the direct tax reductions, the GST reductions, or the upfronting of interest rate cuts, I think have galvanized the economic activity in the recent past. The headline inflation has been printing very low, thanks to the low food inflation. This probably gives the Monetary Policy Committee room to maneuver on future interest rate actions. We've had strong rainfall in most parts of the country. The GST rate changes have created a lot of buzz in the market in the later part of September onwards.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Coming to the bank, the improvements in the economic activity have given us the opportunity to accelerate loan growth. We can see a lot more color as we get into Q&A. We've seen our growth pick up across segments. We continue to see market share gains in deposits, and we are very focused in disciplined pricing. As expected, due to the front-loading of the interest rate cuts on the asset side of the balance sheet, we did see NIM compressed by about 8 basis points. We should see, over the next 6-12 months, the deposit pricing having some amount of tailwind effect in the NIMs. We are managing our expenses in a very tight band, and we should see our investments in distribution and technology creating an operating leverage over the medium to long term.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

We continue to invest in technology, not just in core platforms and middlewares, which will bring about a lot of stability in scalability, in availability, in resilience, and in security. We are also embarking on creating a platform to embark on certain low-hanging new age experiments, such as GenAI. Largely, these are to re-engineer our processes and create a kind of a great customer experience by reducing turnaround time. It will have a second-order impact if it becomes successful, which is what we are all working hard towards into the bottom line of the bank. I think our USP, as probably you have seen the numbers, continues to be our very healthy asset quality, and we don't see too much of issues in that, even in our early indicators as well.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Our metrics, large part of our metrics, whether it's NIMs, whether it is cost-to-earnings, whether it's a return on assets, have been very range-bound, and we should see a fair amount of stability with a positive bias in the medium to long term. Let me pause out here, and happy to take on any questions. We have our CFO, our DMD, and other colleagues who will collectively be answering to some of your questions. Thank you.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Thank you, Neera. Kindly open it up and kindly get to the queue.

[Operator]

Thank you very much. We can now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Mahrukh Adajania from Nuvama Wealth. Please go ahead.

[Mahrukh Adajania, Research Analyst at Nuvama Wealth]

Yeah, hi. I had a few questions. My first question is on the recoveries in the NPL movement. They look very strong. Is it that the recovery environment has improved substantially, or is there a one-off there?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Yeah. The recoveries, I have a one-off there, where there was an NPA which performed satisfactorily over two years, and appropriate ratings were received and upgraded. To that extent, yes, it did improve there. What we did is that also releases some provisions, as you know. At an aggregate level, the contingent provisions have been added by about INR 1,600 crore or so, where we have created more resiliency and strengthened the position there. From an overall point of view, the recoveries, more than the recoveries, the upgrades, I would say that upgrades have contributed to approximately 10 basis points.

[Mahrukh Adajania, Research Analyst at Nuvama Wealth]

Okay. The one-off would be how much?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Yeah, the 10 basis points, 140 basis points.

[Mahrukh Adajania, Research Analyst at Nuvama Wealth]

Okay.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

1.4% was the prior quarter NPA. We ended up at 1.24%. About 10 basis points was upgrade.

[Mahrukh Adajania, Research Analyst at Nuvama Wealth]

Got it.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Which I would not say is recurring.

[Mahrukh Adajania, Research Analyst at Nuvama Wealth]

All right. Got it. Makes sense. In terms of margins, you had been guiding that the exit margins will be same as last year's 4Q exit core margins. Does that guidance still hold good? Is the repricing on track for that?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Okay. Let me take that. See, there are two things, Mahrukh. If you look at the yield on assets, yield on assets have come down from the time it started, from the beginning of the rate cycle, which is in our printed, in our published statements. You'll be able to see it, I think, on page number 14. In the quarter, 30 basis points, but over a period from December to now, almost 50 basis points has played out on yield on assets, right? Which is, you know, that 100 basis points changed in the policy rates. About roughly 70% are in floating area. That works out to almost, most of that is priced in. The last some tail of kind of a partial month or a quarter kind of impact that can come in the following quarter. Otherwise, a lot of it is priced in there.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

From a yield point of view, from a cost of funds, the 4.9% came to 4.6%, so 30 basis points. Slightly, about half or slightly a little more than half is what you are seeing coming through, flowing through in the cost of funds, which is where the savings deposit change has flown through. The prime deposit rate change, which is between 70 basis points and 80 basis points or so, has changed. That takes almost quarters to flow in. A little more than a quarter and a half has gone by. In this quarter, you saw that the cost of funds improved by about 18 basis points. On the page, you see about 20 basis points, I think 19 basis points. You see a 20 basis points rounded number there that cost of funds has come down by.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

It has got another at least four, five quarters to play out, which means over the next few quarters, the rate remaining constant, and that means that the stable assumption level, the cost of funds, starts to move down. If the asset stabilizes at that level, you see that pickup coming. Yes, we are optimistic that, with the stable rate scenario, our exit should be moving up from where it is today.

[Mahrukh Adajania, Research Analyst at Nuvama Wealth]

Okay. How do you view the deposit growth? This time, loan growth was very good, and while the deposit growth was good, the incremental LDR did rise. How do we think about LDRs from year on?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Okay. Good, good question. Thank you for asking that. Our LDR, we started the year at about 96% and change. Our strategic objectives when we laid out that the rate of growth on loans in this year will be at market and in the FY 2027 will be faster than the market, predicated that the LDR will come below the 90% mark, somewhere, call it the 85%-90% or below the 90% mark, right, which is okay. That's the kind of strategic pattern. It's not a linear progression. What is more important is that direction of the travel. That means coming down from 96% to below 90%, direction of travel is important. The quantum, how it moves quarter to quarter, it can vary because there are seasonalities that play out. In this quarter, you did see, we did see, credit demand that was good.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

We participated with our clients where it made sense from our engagement and profitability and total relationships. We will continue to do that. Our strategic objective of getting to grow in line with the system this year and higher than the system in the following year continues to be there.

[Mahrukh Adajania, Research Analyst at Nuvama Wealth]

Got it. Okay. Thanks a lot.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Thank you.

[Operator]

Thank you. Next question is from Mr. Chintan from Autonomous. Please go ahead.

[Chintan Joshi, Indian Financials Analyst at Autonomous]

Thank you. Happy Diwali to all. Can I start with capital? The recent draft proposal seemed to suggest a meaningful reduction in risk-weighted assets. You are already at a very high capital adequacy ratio. You have got even more contingent provisions now. You chose to put more buffers on. You know your loss experiences are not going to be that bad for expected credit loss. What are we going to do with all this extra capital, given that you are able to grow with your retained earnings even when I look out beyond FY 2027?

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Let me sort of come in out here. It is obviously, you know, you are seeing this kind of a buildup of the capital ratios in the recent past because the bank chose to slow down in FY 2025. Now we are on that upward trajectory. You're right. All the potential regulatory changes will have a little bit of a benefit in terms of on the capital ratios. On the ECL side, I'm not too sure because if you really look at it, the bank has already a proven track record and having a very well-established model in ECL. That's already known to the world and known to you, I'm sure, as we disclosed the U.S. GAAP results.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Having said that, if you look at the draft guidelines or the fine print of that, there are a lot of prescriptions or floors that have been prescribed, which means that the pure ECL advantages may get nullified. If not, even you may have to maintain higher levels of ECL if such draft guidelines were to go through. Obviously, we need to wait and watch when this starts to come out as final guidelines. Having said that, as we have just mentioned, we believe that the change in economic cycle probably has just begun. Whilst I do appreciate that we need to wait and watch how whether this is sustained even beyond the festive period, there is a fair amount of optimism in most of us out there to say that this will be sustained.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

The moment we hit the trajectory that we have laid out for ourselves, that is in FY 2027, we will start to grow faster than the system. We should start to consume capital. If you've looked at our long-term trajectory, we have been consuming capital about 60 basis points-70 basis points every year on a very steady-state scenario in the past prior to any of these events such as merger, etc. Also, for a large systemically important bank, it is very imperative that we don't go down necessarily to the regulatory prescribed threshold levels. We need to provide capital or allocate capital for unknown and unforeseeable risk as well. We do have a capital planning process, which obviously where the threshold levels are far higher than the regulatory prescriptions.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Frankly, while optically it may be higher today, as we sort of get back onto the growth path, I think we would have sufficient capital as one would have when we raise capital, as you've seen in our past history, but normally we raise capital, we have enough capital for about three to four years of growth. I would say that, you know, from FY 2027, when we get back to that kind of a growth, we should have that much of room and that much of cushion to be able to have three to four years of growth at least for consuming before we start to look at other options.

[Chintan Joshi, Indian Financials Analyst at Autonomous]

Yeah, the only thing I would say to that is I don't think you are in a place where you consume 60 bps-70 bps of capital every year now. Given your size, even if you grow at 17% or 18%, you would be break-even on the capital you already generate. Am I wrong out there?

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Yeah, Srini.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Yeah. No, you're right that even in this quarter, if you look at it, our capital we generated is 60 basis points and the consumption is 60 basis points, right? The 19.9% to 20%, the capital ratio changed 0.1%, is this rounding. Other than that, it's about 10 basis points change in capital. Generation and consumption at this level is there. When you grow faster than the system, the consumption will be faster. When there is a mix which is a little more in the mix which is a little more oriented on the retail, the consumption will be even more faster than that. We need to cater and provide for all of those things. It is important to keep the capital on our side to essentially keep the opportunity space for growth as much as we can.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Having said that, if there are any opportunities that may arise in terms of other options that are available to sort of delight shareholders, we would be more than happy to do so. We will keep on exploring such options.

[Chintan Joshi, Indian Financials Analyst at Autonomous]

Yeah. My second question was on margins. On margins, you know, LDR seems to have benefited this quarter, but when I look at cost of funds, it seems like it is not falling as fast as some of the other larger players. Is that just the timing difference in the way you built up your TD book versus the other guys, given the merger and that it should unwind over the next few quarters?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Yes. Our cost of funds moved down by about 18 basis points-19 basis points or so in this quarter. Deposit cost of funds came down by a similar amount. Yes, our savings account rate change is fully factored in. The time deposit rate change to factor in fully. The magnitude of the changes in the rates that we and many players have done are of similar order, except that it takes us almost six quarters to play it through into the cost of funds.

[Chintan Joshi, Indian Financials Analyst at Autonomous]

Longer duration, okay.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

That's right. You know, it's Chintan, it's also about duration. We normally, because we need stability in our balance sheet, tend to have a slightly longer duration to be able to, especially on the retail side. That is the reason why the tailwinds will be slightly longer in terms of visibility of getting drawing back this kind of a repricing advantage.

[Chintan Joshi, Indian Financials Analyst at Autonomous]

Thank you. A quick data question. Borrowings from Erstwhile Limited, how much is left on your book just now?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Annual report reflects the maturity profile of Erstwhile the next.

[Chintan Joshi, Indian Financials Analyst at Autonomous]

Okay. Thank you.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Thank you.

[Chintan Joshi, Indian Financials Analyst at Autonomous]

Good day.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Thank you. You too. Have a great one.

[Operator]

Thank you. Next question. Sorry, it's from the line of Kunal Shah from Citigroup. Please go ahead.

[Kunal Shah, Analyst at Citigroup]

Hi. The first question is particularly with respect to deposit market share. We would tend to maintain a particular market share on the incremental deposits, which seems to have come off. Is it largely to do with the rundown of bulk deposits during the quarter? We see some increase in the proportion of retail deposits as well, but the lower deposit growth this quarter in particular may be just 1.2x the industry average. What could be the reason for that? Should we see the uptick going forward?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Yeah. See, one on the deposits, you know, the market share is an outcome. Our approach is as granular as possible and as far reaching through our branch network, which is why the deposits that come from our retail network is about 83% or thereabouts. In this quarter, you had seen that the proportion went up by 1 percentage point, where the non-retail deposits came down in this quarter, while retail deposits did grow. I mean, that's in terms of the pricing and in terms of the availability and the client relationships, time to time that gets determined, right? We do participate in many of those, but we will be circumspect in how much and when we participate.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Kunal, you know, when I sort of did my opening remarks, I did mention that there was an element of disciplined pricing, and this is what I meant, which Srini elaborated just now. Having said that, I normally, as all of you look at period-end deposits, I have been maintaining every time in my call that you should also look at averages. Averages, I think we have gone recently well at about 15% year on year. I think that is something that we are very comfortable on a year-on-year growth. Thank you.

[Kunal Shah, Analyst at Citigroup]

Got it. This increase in contingency provisions, you indicated that on the recoveries, there was some provisioning release, and that was the reason for contingency, or is there anything to do with maybe the ECL buildup? You already carry a very decent level of contingency provisioning, and we are adding over and above that. How should we get, maybe is it a particular recovery effect which is getting nullified, and that's the reason it's created?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Yeah, that is exactly. There's the space, the opportunity space. Contingent provision, as the name suggests, it is precautionary and not anticipatory. Where it is available and opportune space, we do. ECL provisions to the side, whatever, whenever that comes to life, and those draft guidelines are finalized, we can do the fine-tuning of what it entails. We do feel comfortable with ECL, both from an implementation or from a requirement of a provisioning and so on. At this time, exactly as you alluded to, was the thought process on the contingent.

[Kunal Shah, Analyst at Citigroup]

Sure. Lastly, on fee income side, the sequential uptake is more volume-related, or is there any element of one-off or some particular pickup in the segments in any of the subsegments which we are seeing during the quarter?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

No, no. The fee element, if you look at it, the fee has grown by about 9% or thereabouts. One of the areas, in fact, the proportion by various products that you see is almost consistent. You have to look at prior year more than prior quarter because one quarter to another quarter, there are seasonalities of various products. It is consistent, and that's part of the regular growth.

[Kunal Shah, Analyst at Citigroup]

Okay. Got it. Some element of wholesale would be there because that proportion is going up.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

No, not wholesale. Not wholesale. Kunal, the fact of the matter is you started to see the asset buildup happening. The disbursals would have started to kick in during this quarter. There would be definitely better earnings arising out of the asset disbursals as well.

[Kunal Shah, Analyst at Citigroup]

Got it. Okay. Thanks, and all the best, and wish you all a very happy Diwali.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Thank you. You too. Have a great one.

[Operator]

Thank you. Next question is from the line of Anand Swaminathan from BofA. Please go ahead.

[Anand Swaminathan, Equity Research Analyst of India and ASEAN Financials at BofA]

Thank you, everyone. I have a couple of questions. One, we have just crossed the two-year mark post-merger as well. If you can give some key success metrics in terms of synergies and what has worked out the best, if you can highlight what has been lagging versus what we had in the past two years back. Number two, in terms of the line of sight of ROAs, what kind of timeframe are you thinking about now to get back above the 2% ROA mark, which we used to do consistently before? Thank you.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Let me try and attempt this, and maybe later on, Kaizad or Srini can just jump in. Number one is, let's face it, this is one of the most complex mergers in recent history. Two is, as you know, the bank had to do much more than what it was normally doing in terms of trying to step up the pace of raising funds to meet the incremental reserve requirements, the other LCR requirements that happened on their liabilities, which we inherited, and also the funding for the incremental priority sector requirements as well. In addition to that, obviously, when we realized that the economic outlook was changing post-merger, we took a strategic call that we would like to relook at our black box, and we said we want to bring down the credit deposit ratio much faster than what we had envisaged at the time of announcing the merger.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

That meant that you needed to step up the pace of deposit growth much more than what one would have done, even though the liquidity environment was extremely tight. I think these were all extraordinary events that we went through post the merger. I think doing all these slightly more than what the organization's capacity was, we still maintained reasonable stability in terms of margins right from the time we had our day zero, day one financial metrics, whether it is in NIMs, whether it is cost-to-earnings, whether it is the asset quality, or whether it's a return on assets. If you've looked at it over the two-year period, I think it's been reasonably stable and range-bound, and that itself is very commendable for a population-scale kind of an organization.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Having said that, during this period, we continue to invest into the future, into technology, into distribution, and into resources because we believe that the impact, if you need to really harness the opportunity of the merger, we need to ensure that we have enough funding to be able to fund the future growth as well. I think that said, we were not too focused on managing the cost-to-earnings during this period. We said, "Let us invest and let us start to," and this will harvest itself over the next three to five years' pace. As we see, one of the most important things is on the home loan space.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Home loans, as we mentioned, is a very emotional product, and the kind of relationship that comes about is going to be long-term in nature, far more having a better emotional cushion, and it is going to have a far more far-reaching impact than some of the short-term consumption products. The process has commenced. I think the team has done a job of trying to ensure that we try and sell home loans from a larger distribution than what we were doing pre-merger. Two is when we started to offer home loans, we said that we will try and cut down the turnaround time, so that, of sanctions. I think now it's in the public domain for individual loans. We have now brought down the turnaround time to two days, and for self-employed, it's now three days.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

Three is we will have journeys which will ensure that we have a one-click experience in offering a bouquet of products when we sell a home loan. In terms of the upsell, whether it is in terms of having a savings account attached to every home loan disbursal, happy to say that there is, almost, you want—let me have Kaizad sort of speak about it because he runs this very passionately. Yeah.

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

Thank you, Sashi. Without going through all the pointers that Sashi mentioned, I think one of the advantages that we brought, apart from changing the turnaround times, was opening the segment to the self-employed base, which was not there previously when home loans were being done. That's opened up a large segment for us. It's also ensured that we are in a position to upsell far more products, including at the liability side of it. Empirical data has shown that whenever a customer has a home loan and he brings with it the checking account, there is a change in the value of the relationship that comes. I think we've been already able to start implementing that. We've seen good results over the last one year.

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

With increased distribution, changing our turnaround times, being able to offer home loans and customize products in home loans to different customer segments based on geography as well as their demographics, and in addition to that, the upsell that we have been able to do across a whole range of products, which is the credit cards that go along with it when a person buys a home loan, the consumer durable loans that go along with it, as well as being able to offer them our brokerage services and insurance. When you look at the whole gamut of the upsell along with the checking account and an emotional product like a home loan, which is a good duration product, it's already started playing out what we had envisaged as the roadmap. I would say that we are on track.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

I had one thing just to, Kaizad, so that this number we can keep talking and tracking these things, is credit cards for when a new mortgage is given, the credit card penetration, we have been successful, as Kaizad alluded to, is now a little more than 14%. We are able to get that penetrated. On the consumer durable function, our penetration is in the mid 30%. On the brokerage account, we are like a 15%+ penetration. We are progressing on those, on each of those products on the scale of how we want to hit. On the savings account, I think we alluded to, we are 98%-99% savings account.

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

That's right.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

The end result in terms of the balance buildup in such accounts is far higher than the normal savings account where we don't sort of place in a home loan. As we have mentioned in the call, we believe that from FY 2027, when we get back our trajectory, when we start to ensure that all our distribution outlets start to sell home loans, you will start to see the benefits getting more visible over a three to five-year period. More than that, even the operating leverage on the kind of investments that we have done both in distribution and technology will also start to play. I see a fair amount of positive bias in the key financial metrics over the next three to five years.

[Anand Swaminathan, Equity Research Analyst of India and ASEAN Financials at BofA]

Great. Thanks a lot. Just any comments on the ROA trajectory? Our intention always was to go back to the upper end of that 1.8%-2.2% ROA range. Where are we in that journey now? What timeframe we should think about?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Yeah. Anand, there's opportunity space on the ROA. Yes, we are between 1.8%, 1.85%-1.95%. That's where we've operated over the last eight quarters or so, as you see. The space on the ROA comes from cost of funds because that's where the ROA, the merger benefit comes a lot on the P&L through the cost of funds because you replace the borrowings. You change the mix of the deposits from time deposit to CASA. As we have so far in the last two years had predominant growth in time deposit. These are some of those levers. They remain intact, and they remain the opportunity space for us to get there. Yes, that's that. These are the drivers. It is about the cost of funds which changes that trajectory.

[Anand Swaminathan, Equity Research Analyst of India and ASEAN Financials at BofA]

Thanks a lot. Thank you.

[Operator]

Thank you. Next question is from the line of Rikin Shah from IIFL Capital. Please go ahead.

[Rikin Shah, SVP at IIFL Capital]

Good evening, and thank you for the opportunity. Two questions. First one is on cost of fund improvement in this quarter for us. It has been marginally lower than the peers. Is that only due to the longer duration of liabilities, which means that it's just a timing problem, and a lot of that could be back-ended for us vis-à-vis front-end for the peers? Is it due to higher TD mobilization for HDFC in the recent last one year? Hence, this difference could potentially persist in the near term.

[Operator]

Rikin, sorry to interrupt. Your voice is coming muffled.

[Rikin Shah, SVP at IIFL Capital]

Is this better by any chance? Hello?

[Operator]

If you can speak a little bit, go ahead.

[Rikin Shah, SVP at IIFL Capital]

Yes. I was asking on the cost of fund trajectory in this quarter for us relative to the peers. It has been marginally lower improvement. I wanted to understand whether it is solely due to the longer duration of liabilities, as Sashi alluded to in the earlier point, which means that it would be a bit more back-ended for us? Is it due to the fact that we have mobilized higher quantum of term deposits in the last one year, and hence this difference may persist? That's the first question. The second one, just Srini, if you could quantify the additional provisions that we made in the quarter through the P&L against that one-time recovery upgrade that you mentioned. That's it.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Yeah. Again, the first thing is in terms of the cost of funds, every balance sheet has got a structure, a duration, and that determines, and the mix of time deposit, CASA, and so on. These determine how the cost of funds move. I think in some other question, maybe 10 minutes ago, we did talk about the space which is there in the cost of funds and the time that it takes to factor that in. We have to wait for some time for that to play it out. We are focused on getting the core business of franchise of deposits growth and thereby the customer relationship. It will play off the cost of funds. That's the first thing. The second aspect that you talked about is the provision.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

I think that also to Mahrukh or somebody I had mentioned that we did add, if you look at on the provisions are on page number 19 of the deck that is there, you'll see that the right side, the right side block where you see the contingent provision of almost about INR 1,600 crore which is there added there. We also have added general provisions of about INR 600 crore. That's general provision as we have a loan growth that we need to support and various other things. Effectively, the general provisions is about 41 basis points of the loans coming up from about 40 basis points. Similarly, the contingent provision is also up by 1 basis points or 2 basis points. We've augmented that.

[Rikin Shah, SVP at IIFL Capital]

Okay. Got it. Thank you so much. Happy Diwali to the entire team.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Happy Diwali to you too. Thank you.

[Operator]

Thank you. Next question is from the line of Abhishek Murarka from HSBC. Please go ahead.

[Abhishek Murarka, Director at HSBC]

Yeah. Hi. Good evening. I have a couple of questions on some of the individual loan segments. First is on personal loans. Do you think all the parameters are now green and you can accelerate? Is the risk appetite much better now versus earlier? For or rather to accelerate, do you need to loosen any of the tighter underwriting norms you would have adopted after the November 2023 circular a couple of years back? Is that a requirement or even with the current norms you can sort of accelerate? Just some sense there on how you're looking at growth and revival. The second one is on home loans. I think you all made very valid points about the product itself and the importance of the product for the franchise. If I look at the overall growth, you're still 300 bps below the industry growth.

[Abhishek Murarka, Director at HSBC]

I understand maybe it was due to the fact that the period was such where margins were under pressure and maybe you wanted to trade that off. Now going forward, do you see that accelerating again? Are there enough risk-adjusted returns there to grow at least at par with the industry? The third is on gold. What are the yields right now? You're growing 5%-6% QoQ for several quarters over there. Is that still lucrative from a return and margin perspective? Are you seeing some yield pressure there? Just these three things if you could talk a little bit about. Thank you so much.

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

Okay. Your first question being on the unsecured book. We've always had an approach where we will not go down our credit standards for underwriting, whatever would be the cycle that would be present. We've always looked at opportunities to grow in segments that we are comfortable and based on the economic environment and the growth that is there in the economic environment. We've seen a steady growth come through because there has been an uptick in the credit uptake in unsecured loans. We have appropriately participated out over there. As it unfolds and as Sashi alluded to, we see a positive traction continuing in the economic environment. We will certainly participate in our target market and ensure we capture our rightful share out over there without having to dilute any credit standards. If I move to the mortgage piece out over there, your question was on.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

The volume rate of growth.

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

Yeah. On the volume rate of growth, last year, if you step back, we did a lot of corrections that needed to be carried out in terms of process, market, the kind of yields that we wanted to participate in. From there, if you see, we have started increasing our market share. Today, we do believe that we have closed the gap between what we had about a year, year and a half ago, and where we are. If you see some of the participants in the last 90-120 days post the RBI reduction of 50 basis points in June, we witnessed a lowering of rates in the market by a host of players.

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

We chose not to go down the interest rate ladder and participate at those levels because it has to make a certain level of economic sense and return as we also balance it with market share. We do believe we navigated that in a manner where we saw very quickly some of the players revise their rates and bring it back up. We do believe that over the next 18-24 months, this is a product that we will be with market. We've already shown that over the last several quarters. We will not do anything only to get market share gain. That has never been our philosophy. It is a long-duration product.

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

It is a product where you connect with the customer and you want to have a customer quality where you can engage even greater across our product suite and have a relationship which lasts through the lifetime of the loans. That's our outlook with regard to the mortgage business. The third question was on gold.

[Abhishek Murarka, Director at HSBC]

Yeah, I just had a very quick follow-up here. Is the pragmatism on pricing returning, or is it just still quite competitive and still not the right time to press the pedal?

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

It is coming back to some levels of sanity, but I would think it's yet a little distance away because it's quite an uneven market, you know, where you see different players come and accelerate their appetite on home loans and therefore use rates as a strategy to try and meet their objectives. We will have to see how this unfolds. I wouldn't want to jump the gun where that is concerned. Very quickly, in the interest of time, I move to your query on gold loans. Yields have been good. Our experience as we are growing this book in a steady manner has thus far been very helpful. We do see us continuing on that path. We will be watchful as it is, again, a very emotional item with clients and who we deal with, and the clarity of the terms on which we deal with them.

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

We will be cautious of that. Yields on gold loan book have been, I would say, pretty rich given that it is a fully collateralized exposure.

[Abhishek Murarka, Director at HSBC]

Is the yield here higher than your retail yield or at par? Just the retail portfolio?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Abhishek, going into one particular product rate, all I will tell you is that this is incremental to the bank's yield as well as the retail product yield.

[Abhishek Murarka, Director at HSBC]

Okay. That's fair. All right. Thank you so much, and happy Diwali to the team.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Thank you. Happy Diwali to you all.

[Operator]

Thank you. Next question is from the line of Jayant from Axis Capital. Please go ahead.

[Jayant Kharote, Executive Director at Axis Capital]

My question is on credit. I think the book is not growing sequentially as much. We do see.

[Operator]

You really lost your audio in between. Can you repeat your question once again?

[Jayant Kharote, Executive Director at Axis Capital]

Hi, am I audible now?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Hi. Yes.

[Jayant Kharote, Executive Director at Axis Capital]

Yeah, question is on credit card. When the book is not, especially in this quarter, whereas we do.

[Operator]

Sorry to interrupt you. We are again losing your audio. Can you speak through your answer, please?

[Jayant Kharote, Executive Director at Axis Capital]

Is this any better?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Try again. Talk softly. Try again.

[Jayant Kharote, Executive Director at Axis Capital]

Okay. My question was regarding credit cards. The cards have not grown as much during this quarter. However, the card issuances and the spends have been growing very sharply ahead of industry for the past several months. Is there a mismatch? Have we observed any uptick in the post 22nd of September period?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

First on the card, overall, first is that the card growth I alluded to, I think it's 1.5 million new card additions in the quarter. We have seen that, which we have talked about the last four quarters, where from various spend categories, there are certain spend categories that we are cautious of. We have been managing through the spend type. There are certain things we like and certain things that we have restricted. Secondly, in terms of various credit lines, we are again circumspect on increasing credit lines for revolvers. We have seen that the revolver rate hasn't picked up. If anything, it has only come down. From an overall balances point of view, a good amount of transactors who spend and pay, especially from a strategic.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

See, very similar to what Kaizad and Srini have mentioned. I just wanted to add that there will be times where probably because of festivities, there will be a fair amount of offers that will be there from e-commerce platforms. Participants in that particular platform probably would have seen a fair amount of buoyancy in terms of spends and spends per card. If you look at the industry data, you would see a fair amount of spends happening on account of the festivities or the start of the festivities by some of these e-commerce platforms. We have elected and we sort of keep evaluating this particular space to see whether it makes economic sense to participate in some of these spends or not.

[Sashidhar Jagdishan, CEO and Managing Director at HDFC Bank Limited]

If you are comparing or looking at it from an industry perspective, as has been the philosophy, we try and ensure that whatever we participate in largely, it should make some economic sense. It is a fact that we did not participate in some of the large spends that happen during just about the start of the festival on e-commerce platforms. That's probably one of the reasons why you're seeing a very tepid addition to the net receivables on cards for this quarter.

[Jayant Kharote, Executive Director at Axis Capital]

Understood. The second question was the mix of the new acquisitions. How much would be existing to bank and new to bank? Is there any change of thought here of targeting new consumer pools through credit cards? Because we're not seeing this kind of aggression from other players right now.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Normally, it has been between 65%-75% or so is existing. That has been the level at which we have operated over time.

[Jayant Kharote, Executive Director at Axis Capital]

There's no change in the last six months?

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Yeah, there's no big change in there.

[Jayant Kharote, Executive Director at Axis Capital]

Okay. Thank you. That was my question. Happy Diwali to the team.

[Operator]

Thank you. Next question is from the line of Ravi Purohit from SiMPL. Please go ahead.

[Ravi Purohit, Chief Investment Officer at SiMPL]

Yeah. Hi. Thanks for the opportunity, and happy Diwali to the entire team of HDFC Bank. I have two questions. Most of the other questions have been answered. One is about two quarters back, we had mentioned that from the erstwhile HDFC book, we had about 15 bps-20 bps of stress assets, which are actually performing, but we were still classifying them as NPAs. Can you just kind of update us on the status of those? Have a lot of those gotten upgraded, or some of it, if this quarter, one of the assets that you were saying that got upgraded was probably part of that HDFC book? Is there more left there? If you could just share some thoughts there. Second is in our advances book, we have seen healthy growth on the SME side, the medium and mid-corporate side.

[Ravi Purohit, Chief Investment Officer at SiMPL]

If you could just share some thoughts on what we are seeing on the ground on the SME side from loan opportunities. Those are my two questions. Thanks a lot.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

The first one is simple. Yes, I did mention to Mahrukh and to another person that the 10 basis points upgrade is part of that.

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

Yeah. As regards to the SME part of it, I think we have seen at a ground level a fair amount of positivity come back. There is actual credit demand, which one is seeing in that segment. We do believe that with our clientele and our footprint, it gives us an opportunity to continue to participate, keeping the underwriting standards, but also participating out over here. Right now, it is continuing to give us the positivity on that segment. The asset quality in that segment has also held up well. We continue to mine that space within our parameters going forward.

[Ravi Purohit, Chief Investment Officer at SiMPL]

In the RBI policy recently, they had mentioned about, you know, Indian banks being allowed to participate in cross-border or fund, you know, cross-border M&As and all. There were a lot of relaxations that have come in. If you could just share some thoughts as to how does it kind of open up opportunities for larger banks to participate in larger cross-border transactions, which hitherto were not kind of available, and most of that money was being raised in the overseas markets.

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

I think this certainly opens up an avenue for large banks to participate. In fact, for most banks to participate, we will await the draft guidelines, we will await the guidelines from the final guidelines from the regulator, as well as the draft guidelines which have to come out over here. I do believe that there is a large market available, which was being financed offshore or to a smaller extent being addressed by the NBFCs or by alternate funds. This would now be available to banks, and we will most certainly examine this and look at it and be able to participate given our clientele and the depth of our balance sheet.

[Ravi Purohit, Chief Investment Officer at SiMPL]

Okay. Great. Thanks a lot. Once again, season's greetings to everyone.

[Kaizad Bharucha, Deputy Managing Director at HDFC Bank Limited]

Thank you. Wish you the same.

[Operator]

Thank you very much. Ladies and gentlemen, we'll take that as the last question. I'll now hand the conference over to Mr. Vaidyanathan for closing comments.

[Srinivasan Vaidyanathan, CFO at HDFC Bank Limited]

Thank you. Thank you. I want to take this opportune time to wish all of you a very happy festival time with your family and friends. Have a great weekend. Bye-bye. If you have any more questions or comments and clarifications required, please feel free to reach out to our investor relations. We'll be happy to engage. Thank you. Bye-bye.

[Operator]

Thank you very much. On behalf of HDFC Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

Participants

Executives

• Sashidhar Jagdishan, CEO and Managing Director
• Srinivasan Vaidyanathan, CFO
• Kaizad Bharucha, Deputy Managing Director

Analysts

• Mahrukh Adajania, Research Analyst at Nuvama Wealth
• Anand Swaminathan, Equity Research Analyst of India and ASEAN Financials at BofA
• Rikin Shah, SVP at IIFL Capital
• Kunal Shah, Analyst at Citigroup
• Abhishek Murarka, Director at HSBC
• Ravi Purohit, Chief Investment Officer at SiMPL
• Chintan Joshi, Indian Financials Analyst at Autonomous
• Jayant Kharote, Executive Director at Axis Capital