HDFC Bank earnings for the quarter ended September 30, 2026, showed deposits growing 18.8% year over year, but net interest margin narrowed to 3.32% as funding costs remained sticky. In its October 17 results discussion, management said margins had reached a bottom and were expected to improve from the third quarter of fiscal 2027.
Key Takeaways
- Deposit growth supported lending expansion, although time deposits kept funding costs elevated.
- Management expects margin improvement from Q3 FY2027; that recovery is guidance, not a reported result.
- The gross nonperforming asset ratio fell to 1.11%, while liquidity and proposed insurance commission changes remain in focus.
Table of Contents
- HDFC Bank earnings show growth despite margin pressure
- Funding mix delays the expected margin recovery
- Deposit composition matters for liquidity
- Credit quality improves as insurance proposals add uncertainty
- Conclusion
HDFC Bank earnings show growth despite margin pressure
The bank’s second-quarter performance combined expanding business volumes with a narrower lending margin. Assets under management grew 15.3% year over year, led by small and medium-sized enterprises and retail assets. Retail disbursements exceeded INR90,000 crore.
HDFC Bank’s consolidated financial results, approved by its board on October 17, showed net profit after minority interest of INR20,700.03 crore, compared with INR19,610.67 crore a year earlier. Those group-level accounts include subsidiaries and are distinct from the bank operating metrics discussed on the earnings call.
| Item | Details |
|---|---|
| Consolidated total income | INR129,358.69 crore in Q2 FY2027, versus INR118,560.63 crore a year earlier. |
| Consolidated operating profit before provisions | INR32,871.54 crore, versus INR30,940.72 crore a year earlier. |
| Consolidated diluted earnings per share | INR13.41, versus INR12.71 a year earlier; quarterly figures are not annualized. |
Funding mix delays the expected margin recovery
Chief Financial Officer Srinivasan Vaidyanathan said the cost of funds remained approximately 4.4%, unchanged from the preceding quarter. A higher mix of time deposits offset benefits from repricing older funding and calling additional Tier 1 bonds.
Of roughly INR1.57 trillion in quarterly deposit growth, about INR1.3 trillion came from time deposits. Retail current and savings account deposits grew 11.2% year over year, but the overall funding mix continued to weigh on margins.
Vaidyanathan said about 70% of the loan book carried floating rates, providing a channel for loan repricing to support yields. He described margins as being at the bottom, while Chief Executive Sashidhar Jagdishan said the trajectory should turn upward from the next quarter. The timing and extent of that improvement remain management expectations.
Deposit composition matters for liquidity
Quarterly deposit growth of approximately INR1.57 trillion broadly matched loan growth of INR1.58 trillion. Nevertheless, the liquidity coverage ratio stood at about 113%, making the composition of funding an important issue alongside its overall growth.
Vaidyanathan said the bank aimed to operate within a 110%–120% liquidity coverage range, around a 115% midpoint, against a 100% regulatory floor. Management said one-off outflows had increased reliance on non-retail deposits and that a strategy for core deposit growth and the liquidity path would emerge over the following couple of quarters.
Credit quality improves as insurance proposals add uncertainty
The gross nonperforming asset ratio declined 13 basis points from a year earlier to 1.11%, with credit costs at 44 basis points. Vaidyanathan said new problem-loan formation was improving across most portfolios, rather than simply reflecting a shift in the lending mix.
Separately, management flagged draft insurance rules proposing substantial commission reductions as a potential pressure on bancassurance income. The proposals were still open for comments, due in November, and were not final rules. Possible offsets identified by management included higher participation, improved policy retention and lower costs.
Conclusion
The next reporting period will test management’s expectation that margins improve from Q3 FY2027. The insurance consultation’s November comment deadline is another near-term milestone, with the final rules and their income impact still uncertain.
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