HDFC Bank (NYSE:HDB) executives said the lender’s fiscal third-quarter performance was in line with internal expectations, pointing to improving credit momentum, stable asset quality and an ongoing effort to reduce its loan-to-deposit ratio (LDR) over the next one to two years. Speaking on the bank’s Q3 FY26 earnings call, CEO and Managing Director Sashidhar Jagdishan described management as “reasonably sanguine and happy about the outcome,” while emphasizing that deposit mobilization and cost of funds remain key levers for profitability and growth.
Management points to balanced credit growth and easing-rate tailwinds
Jagdishan said credit growth has been “extremely encouraging,” supported by an easing interest rate cycle and “benign credit.” He also noted that the release of cash reserve ratio (CRR) funds enabled credit deployment “slightly ahead of our expectations.”
He also highlighted lower cost of funds as a tailwind, positive CASA growth, cost control through productivity improvements, and “best in class” credit performance that supports stable returns as the bank pivots to its next growth stage.
Loan-to-deposit ratio: glide path reiterated, timing remains flexible
A major focus of analyst questions was the bank’s LDR trajectory following the merger. CFO Srinivasan Vaidyanathan said the bank remains committed to a downward “glide path,” but emphasized that quarter-to-quarter movement can vary due to seasonality and market opportunities.
Vaidyanathan said the bank expects to move “over the next one year to two years” toward levels it operated at previously, “call it the nineties or low nineties.” Jagdishan later provided additional framing, saying the bank had communicated a target range of roughly 90% to 96% for FY26 and suggested it could reach roughly 85% to 90% by FY27, while clarifying that the figure should be seen as a broad band rather than a precise point forecast.
Jagdishan repeatedly underscored that there is no specific regulatory requirement to meet a particular LDR level, but that the bank views the metric as important for sustainable profitability. He said the pace of improvement depends on the availability of funding at rational rates, but added that management does not expect the bank to be constrained by the LDR.
Deposits: retail strength, selective participation in higher-rate segments
In response to questions about deposit growth, executives acknowledged that some deposit categories grew more slowly during the quarter. Jagdishan and Vaidyanathan attributed this in part to the bank’s pricing discipline and selective participation in certain segments where competitors offered higher rates.
Vaidyanathan said the bank saw strong growth in retail individuals, while some non-individual retail categories and certain capital market-linked segments were softer because the bank did not match market pricing. He pointed to a decline in cost of funds of roughly 10 to 11 basis points during the quarter as evidence of this approach.
In a later exchange, management provided additional qualitative and limited quantitative color on deposit segments:
- Institutional deposits: described as growing in the “mid single digits.”
- Non-individual deposits within branch-driven retail: characterized as “more modest,” in higher single digits.
- Individual branch deposits: described as “good double digit” growth.
Jagdishan said the bank is intensifying customer engagement and aligning pricing with a more segmented approach, which he said should become more visible in coming quarters.
Branch productivity, customer acquisition, and deposit engines
Executives spent significant time discussing branch productivity as a contributor to future deposit growth. Jagdishan provided historical context on branch additions and said the bank accelerated expansion at times when opportunity warranted. He noted the bank has about 9,600 branches—just over 6% of the country’s branch network—while holding more than 11% market share of deposits.
Jagdishan said aggregate per-branch business is now about INR 305 crore, compared with roughly INR 237 crore per branch in earlier years. He also discussed branch break-even timelines of about two years on average (around 22 months for metro/urban branches and about 27 months for semi-urban/rural branches).
He added that branches reach a “pivoting point” for scaling around the five-year mark, with growth accelerating in the five-to-10-year cohort and again in the 10-to-15-year cohort. Jagdishan said about 43% of branches are less than five years old, positioning the bank for a maturity-driven uplift in contribution over time. He also said new branches contribute “slightly north of 20%” of overall incremental deposits.
On customer growth, he said the bank has about 100 million customers and added roughly 1.5 million new liability relationships in the last quarter.
Management also discussed product-led deposit behavior. Jagdishan said card customers with outstanding balances tend to maintain materially higher deposit balances, and that mortgage relationships are also used as a relationship anchor. He said savings accounts initiated alongside mortgages start with approximately INR 35,000 and can increase over time, while historical data suggests materially higher balances for customers who hold mortgage relationships.
Asset quality remains “pristine”; compliance and credit costs discussed
On credit quality, Jagdishan said the banking industry is in a “Cinderella phase,” citing strong balance sheets and low NPA accretion across the system. He said HDFC Bank has seen very low gross NPA accretion and that no portfolios indicate stress building up. Vaidyanathan added that leading delinquencies and slippages have been lower, and recoveries remain healthy.
Asked about agricultural loan compliance and potential regulatory provisions, Vaidyanathan said the bank’s regulatory inspection is complete and that about INR 5 billion of required provisions were taken and “subsumed” in the December quarter results. He said the bank will continue calibrating its agricultural book, including reviews tied to “scale of finance” assessments, to ensure regulatory acceptability.
On credit costs, Vaidyanathan said quarterly slippages excluding agriculture were in the mid-20 basis point range and that credit costs should be viewed net of recoveries. He said net of recoveries, the bank is around 37 basis points, broadly similar to prior periods, and described the outcome as a function of write-off and recovery dynamics.
Other topics included liquidity coverage ratio (reported at 116 for the quarter), margin drivers (with management emphasizing the importance of cost of funds and time deposit repricing lags), and the bank’s accounting estimate related to labor code changes. Vaidyanathan said the labor code impact was a high-level actuarial estimate based on available information, noting that rulemaking remains pending and that the bank cannot yet quantify ongoing recurring impacts.
About HDFC Bank (NYSE:HDB)
HDFC Bank Limited is one of India’s leading private sector banks, headquartered in Mumbai. Incorporated in 1994 and promoted by Housing Development Finance Corporation (HDFC), the bank provides a full range of banking and financial services to retail, small and medium-sized enterprises, and corporate customers. It is publicly listed and also accessible to international investors through American Depositary Receipts (ADRs) trading on the New York Stock Exchange under the symbol HDB.
The bank’s core activities include retail banking (deposit accounts, personal loans, home loans, auto loans, and credit cards), commercial and corporate banking (working capital finance, term lending, trade finance and treasury services), and transaction banking (cash management and payment solutions).
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