HDFC Bank, India’s largest private-sector bank, reported its financial results for the third quarter of FY25 on January 22, 2025. The results showcased steady growth, meeting market expectations, despite challenges posed by slower credit expansion and a marginal decline in asset quality. Let’s dive into the highlights of the bank’s performance this quarter.

Net Profit Sees Modest Growth

The bank reported a net profit of ₹16,736 crore for the December quarter of FY25, registering a year-on-year (YoY) growth of 2.2% from ₹16,372.5 crore in the same quarter last year. This steady increase was driven by a combination of factors, including improved deposit growth and operational efficiency, despite higher provisions and slower loan growth.

Advances and Deposits: A Mixed Bag

• Advances: HDFC Bank’s gross advances increased by 3% YoY to ₹25.43 lakh crore. While retail loans grew by 10%, and commercial and rural banking loans saw an 11.6% growth, corporate and wholesale loans declined by 10.4%.
• Deposits: The bank reported a strong YoY deposit growth of 16%, with total deposits reaching ₹24.53 lakh crore. The CASA (Current Account and Savings Account) deposits, a critical measure of low-cost funds, grew 6% YoY to ₹8.18 lakh crore.

This robust deposit growth aligns with the bank’s strategy to enhance its loan-to-deposit ratio (LDR), which had surged post its merger with Housing Development Finance Corporation in 2023.

Focus on Asset Quality

HDFC Bank’s asset quality weakened marginally during the quarter. Gross Non-Performing Assets (GNPA) as a percentage of gross advances rose to 1.42% from 1.36% in the previous quarter. Net NPA also increased sequentially, from ₹10,308.5 crore in Q2FY25 to ₹11,587.5 crore in Q3FY25.

While the rise in bad loans and slippages (₹8,800 crore compared to ₹7,800 crore in the preceding quarter) may raise concerns, HDFC Bank has a history of disciplined underwriting practices that ensure long-term stability.

Net Interest Income and Margins

The bank’s Net Interest Income (NII) increased by 8% YoY to ₹30,653 crore. However, the Net Interest Margin (NIM), a key indicator of profitability, stood at 3.43%, down from 3.5% in the previous quarter. The dip in NIM reflects the higher cost of funds and a shift in the loan mix.

Operating Profit and Provisions

Pre-provision operating profit (PPOP) saw a 5.7% YoY growth, rising to ₹25,000.4 crore. On the other hand, provisions and contingencies for the quarter grew by 16.8% sequentially to ₹3,153.85 crore. While YoY provisions declined by 25%, the sequential rise reflects the bank’s cautious approach to managing potential risks.

Merger Impact and Strategic Adjustments

The merger with Housing Development Finance Corporation added a substantial loan portfolio but comparatively fewer deposits, which has prompted the bank to focus on aggressive deposit mobilization and controlled loan disbursements. This strategic realignment has impacted growth rates in some segments, such as corporate lending, but positions the bank well for sustainable growth.

Capital Adequacy and Network Expansion

HDFC Bank continues to maintain a robust capital position, with a Capital Adequacy Ratio (CAR) of 20% as of December 31, 2024, well above the regulatory requirement of 11.7%. The Tier 1 CAR stood at 18%, demonstrating the bank’s strong financial health.

Additionally, the bank’s network has expanded significantly, with 9,143 branches and 21,049 ATMs across 4,101 cities and towns as of December 2024. Its employee base also grew marginally, reaching 2,10,219.

Stock Performance and Expert Opinion

HDFC Bank shares reacted positively to the Q3 results, closing 1.42% higher at ₹1,665.05 on the BSE. Experts recommend a cautious but optimistic approach for investors. Analysts suggest fresh buying above ₹1,730 for a short-term target of ₹1,800, with a strict stop-loss at ₹1,670.

Looking Ahead

While the December quarter results highlight areas of strength such as deposit growth and operational efficiency, challenges like rising NPAs and a marginal dip in profitability metrics indicate room for improvement. The bank’s focus on disciplined growth and robust capital management ensures it remains a trusted name in India’s banking sector.

As the bank continues to integrate its merger synergies and adjust its loan-deposit strategy, the coming quarters will likely reveal the full impact of these strategic shifts. Investors and stakeholders can look forward to steady, sustainable growth as HDFC Bank solidifies its position in the evolving financial landscape.