The overall advances rose 5 per cent year-on-year (y-o-y) and 4 per cent quarter-on-quarter (q-o-q) to ₹26.43 lakh crore
Country’s largest private sector lender HDFC Bank will likely see a slight contraction in its net interest margin (NIM)–a key indicator of banks’ profitability—in Q4FY25 as the bank continues to grow deposits at a far higher pace than advances, analysts say.The lender’s NIM stood at 3.43 per cent in Q3. It is set to report Q4 earnings results on April 19.
According to the bank’s provisional Q4 updates, overall advances rose 5 per cent year-on-year (y-o-y) and 4 per cent quarter-on-quarter (q-o-q) to ₹26.43 lakh crore. Deposits, meanwhile, grew 14 per cent y-o-y and 6 per cent q-o-q to ₹27.14 lakh crore.
“HDFC Bank’s deposit growth will be better than credit growth, aiding loan-deposit ratio. Credit growth is significantly below the industry growth. NIM shall contract slightly q-o-q,” said Axis Securities in a report. It added that Opex ratio for the bank shall remain broadly steady, while operating profit will be healthy.
The bank should see stable asset quality in Q4 as fresh slippages remain under control. Net interest income (NII) will likely rise by 7 per cent to ₹29,077 crore, while non-interest income is expected to fall 34 per cent on-year to ₹18,166 crore, it said.
Lower advances growth is in-line with the management’s commentary that the lender would grow advances at a slower pace than banking system in FY25, grow loans on-par with banking sector in FY26, and at a faster rate than industry in FY27. This is to lower the bank’s credit-deposit (CD) ratio, which shot up after merger of erstwhile HDFC with the bank. HDFC Bank also securitised loans amounting to ₹10,700 crore in Q4FY25 to lower CD ratio.
Key monitorables
According to YES Securities, the bank’s NII growth will be slightly slower than average loan growth due to fall in yield on advances outpacing cost of deposits.
“Consequently, NIM will be lower sequentially. Sequential fee income growth will broadly match loan growth. Opex growth would slightly lag business growth. Slippages would be lower on sequential basis due to seasonality. Provisions will be higher on sequential basis,” it said.
According to Santanu Chakrabarti from BNP Paribas Securities India, despite conservative assumptions, the bank’s return on assets (ROA) is seen touching 1.9 per cent by FY25 end and return on equity (ROE) nearing the pre-merger steady state of 17 per cent by H2FY26.
“We also performed an extensive scenario analysis on incremental CASA (current and savings accounts) momentum as a key determinant of the bank’s earnings locus. It revealed a remarkable asymmetry. A positive surprise on CASA vis-à-vis base expectations moves the ROE needle almost twice the rate of a negative surprise. This is thanks to the greater elasticity of loan growth to CASA acceleration than slowdown. In other words, on the issue of CASA – heads, the bank wins big; tails, it does not lose much, in our view,” he said.
Published on April 18, 2025
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