HDFC Bank Ltd. posted better-than-expected results on healthy loan growth, signaling that India’s biggest private sector lender is beginning to recapture ground it had ceded to rival ICICI Bank Ltd. for most of last year.
Mortgage demand and loan expansion has recovered at HDFC in the past two quarters stabilised after a slowdown following its merger with parent Housing Development Finance Corp. Ltd. in 2023. The deal saddled the combined entity with a large pool of long-tenor home loans, weighing on liquidity and margins, allowing ICICI Bank to grow faster in that period.
That dynamic is now shifting. HDFC Bank expects loans to expand faster than the overall banking system in the next financial year, Chief Financial Officer Srinivasan Vaidyanathan said on a conference call on Saturday. On the other hand, ICICI Bank—which pulled ahead of HDFC Bank over the past year on loan advances and profit growth—reported lower October-December profit due to higher one-time provisions.
Credit demand remains robust in the world’s fastest growing major economy, supported by a cumulative 125 basis points of interest-rate cuts over the past year. GST rate cuts have also lifted disposable incomes and boosted big-ticket purchases tied to retail lending. Lower reserve requirements are partly offsetting pressure on bank margins.
Funding remains the key battleground in India’s crowded banking industry, with competition for both assets and liabilities set to intensify as Japanese and other overseas lenders ramp up investments in the industry.
“HDFC has managed to put most of its merger-related hangover behind, but it would take perhaps one more quarter to completely shrug those off,” said Amit Khurana, head of equities at Dolat Capital. “Immediately after the merger, it was an opportune time for ICICI to gain market share from HDFC.”
Even as the smaller rival has protected margins, the enlarged HDFC Bank is now showing a robust performance. HDFC Bank’s loan book—the largest among private sector lenders—stood at ₹28.45 lakh crore at the end of December, double that of ICICI Bank, and grew nearly 12% on the year, led by retail and small- and mid-sized company advances. ICICI Bank’s loan book expanded 11.5% over the period.
Once the interest-rate environment stabilises, ICICI Bank is targeting strong growth and profitability, while maintaining a “risk-calibrated approach”, said Executive Director Sandeep Batra.
Morgan Stanley’s analysts said in a note that HDFC Bank’s net interest margins had “troughed” despite some expected moderation in the fourth quarter. This, coupled with strong asset quality and high operating leverage should boost stock returns, they said.
HDFC Bank and ICICI Bank’s shares have risen 13% and 11% respectively over the past year, lagging state-run banks which have led a 23% rise in the Nifty Bank index.
HDFC’s dominant retail franchise and improving funding profile is enabling it to re-accelerate growth in core segments such as mortgages, and unsecured retail, according to analysts.
