What HDFC Bank (HDB) Said on Its Q2 Earnings Call

Key Points

• Growth accelerated: HDFC Bank reported 18.8% year-over-year deposit growth and 15.3% growth in assets under management, led by retail, MSME and mid-market lending. Retail disbursements, credit-card issuance and new liability relationships all increased during the quarter.
• Margins may have bottomed: Net interest margin was 3.32%, but management expects loan repricing to begin benefiting margins from the next quarter. Executives described the outlook as neutral to positive despite higher-cost FCNR deposits.
• Asset quality remained stable amid leadership changes: Gross NPAs improved to 1.11% and credit costs were 44 basis points. Anup Bagchi is set to become managing director and CEO as Sashi Jagdishan’s tenure ends, while Deputy Managing Director Kaizad Bharucha plans to retire early.

HDFC Bank NYSE: HDB said its deposit and loan growth accelerated in the second quarter of fiscal 2027, while management indicated that net interest margins may begin improving from the next quarter as loan repricing catches up with funding costs.

Chief Executive Officer Sashi Jagdishan said the economic backdrop remained supportive, citing stronger-than-anticipated first-quarter GDP growth, industrial production, e-way bills, cargo activity and credit growth. He also pointed to retail-consumption indicators, including passenger-vehicle and two-wheeler sales growth of more than 30% and consumer durables growth of about 11% year over year.

The call also marked a leadership transition. Jagdishan said his tenure at the bank was ending and welcomed Anup Bagchi as the new Managing Director and CEO. Later in the call, the bank disclosed that Deputy Managing Director Kaizad Bharucha had requested early retirement effective at the end of December.

Deposit Growth and Retail Momentum

Reported deposits rose 18.8% year over year, including a roughly 4-percentage-point benefit from the Reserve Bank of India’s special FCNR swap window, Jagdishan said. CASA deposits grew 10.8%, while retail CASA increased 11.2%, compared with 9% growth a year earlier.

The bank added approximately 1.7 million liability relationships during the quarter, up 25% from the prior quarter and 33% from the fourth quarter of the prior fiscal year. Jagdishan said investments in distribution, digital journeys and customer engagement should support further growth, though certain large and unusual deposit outflows during the quarter masked underlying momentum.

He said the bank’s retail CASA ratio was in the “late 40s” and had remained relatively stable over time. However, he acknowledged broader structural pressure on low-cost deposit growth as household savings behavior changes and as the bank replaces former HDFC Ltd. borrowing maturities with deposits.

Chief Financial Officer Srinivasan Vaidyanathan said the bank’s liquidity coverage ratio stood at approximately 113%, within management’s desired operating range of 110% to 120%. He said HDFC Bank intends to operate closer to the middle of that range while continuing to grow. Management also said that, despite the LCR level, the bank’s overall liquidity was “extremely comfortable.”

Loans, Asset Quality and Operating Improvements

Total assets under management increased 15.3% year over year, including a 1.9% impact from FCNR leverage. Retail and small and medium enterprise lending led growth. Retail disbursements exceeded INR 90,000 crore during the quarter, up from INR 76,000 crore in the first quarter.

Retail assets excluding agriculture grew 11.2% as of September 2026, compared with 9.1% in June and 7.4% in March. New credit-card issuance reached 1.4 million, an increase of nearly 19% from the preceding quarter.

Growth in MSME and mid-market lending also strengthened. End-of-period loans in the segment increased 23.5% year over year, aided in part by the Emergency Credit Line Guarantee Scheme 5.0. HDFC Bank said it disbursed INR 41,000 crore under the program, the highest amount among banks.

Management attributed the acceleration to tighter daily operating processes across frontline, credit, operations and service teams, as well as higher digital adoption and straight-through processing. Product-delivery turnaround times declined by 10% to 15%, while service turnaround times fell 30%. Customer visits per employee per day increased by about 50% from the previous quarter, Jagdishan said.

Asset quality remained stable. Gross nonperforming assets were 1.11%, down 13 basis points year over year, while credit costs were 44 basis points. Vaidyanathan said lower slippages reflected improvement across most lending portfolios rather than simply a change in the loan mix. Bharucha added that agricultural gross NPAs remained broadly steady through September despite a weaker and uneven monsoon.

Margins Expected to Improve

Net interest margin was 3.32% during the quarter. Vaidyanathan said the cost of funds remained flat sequentially at about 4.4%, rather than declining, because growth in higher-cost time deposits—particularly FCNR deposits—offset repricing benefits elsewhere in the funding base.

About 70% of the loan book is floating rate, management said. Following a 25-basis-point rate increase in October, the bank expects much of the benefit from loan repricing to be reflected by December. While the full-quarter impact of FCNR deposits will offset some of that benefit, executives said the margin outlook was neutral to positive and characterized the second quarter as the likely bottom of the margin cycle.

Bharucha said the bank expects continued growth in retail and MSME lending, while maintaining its presence in corporate banking. He said management would pursue a calibrated mix rather than shifting portfolios solely to capture modest differences in yield. Vaidyanathan added that returns on assets across wholesale and retail operations were broadly comparable once operating and credit costs were considered.

Technology, Strategy and Leadership

Jagdishan said HDFC Bank is increasing the use of artificial intelligence in customer service, collections and fraud prevention. Recent launches included Edge Security, a unified customer-protection stack, along with Kavach and Secure Lock tools. The bank also introduced AI-enabled conversational banking and collections capabilities.

Bagchi said he plans to engage with regulators, customers, shareholders and other stakeholders before presenting a detailed perspective on growth, margins, quality and productivity. He said the bank would focus on disciplined capital deployment, execution, governance and trust as digital infrastructure and AI create new opportunities.

On staffing, management said technology and automation should enable a greater share of employees to move into customer-facing roles, while reducing the need for growth in back-end functions. Bagchi said the bank’s headcount has grown at roughly a 10% compound annual rate over a longer period, while business volumes have risen at high-teen rates, creating productivity gains.

About HDFC Bank (NYSE:HDB)

HDFC Bank Limited is a financial services company headquartered in Mumbai, India. Established in 1994, it operates as a private-sector commercial bank serving individuals, businesses, institutions and government-related entities.

The bank offers a broad range of products and services, including savings and current accounts, fixed deposits, personal and home loans, vehicle and business financing, credit and debit cards, payments, remittances, investment products and insurance distribution.

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