HDFC Bank Q2 FY25 Financial Highlights and Analysis

HDFC Bank, one of India’s largest private sector banks, has reported its financial results for Q2 FY25, showing steady growth across key financial metrics. The bank has demonstrated its ability to maintain profitability and efficiency despite a challenging economic environment. Below is a detailed analysis of the financial highlights, asset quality, capital adequacy, and future outlook based on the reported figures.

Financial Highlights for Q2 FY25

1. Net Interest Income (NII):
   • HDFC Bank’s net interest income grew by 11.2% YoY to ₹37,588 crore in Q2 FY25, compared to ₹33,789 crore in Q2 FY24. This growth was supported by margin improvement and higher advances.
   • The bank’s net interest margin (NIM) stood at 3.65%, reflecting a slight decrease of 1 basis point (bps) on a sequential basis but an improvement of 5 bps on a year-over-year (YoY) basis. Despite this slight decline, the NIM indicates that the bank is efficiently managing its interest income relative to the cost of funds.
2. Net Profit:
   • The bank reported a net profit of ₹18,627 crore in Q2 FY25, an increase of 7.6% YoY from ₹17,312 crore in the same quarter last year. This growth is mainly attributed to improved operational efficiency and strong revenue performance.
   • The return on assets (RoA) was 1.96%, reflecting the bank’s ability to generate profit relative to its total assets.
3. Cost to Income Ratio:
   • The bank’s cost to income ratio for Q2 FY25 stood at 40.6%, showing a 43 bps decline quarter-on-quarter (QoQ), reflecting improved cost efficiency. This figure, however, was up by 18 bps compared to the same quarter in the previous year.
4. Loan and Deposit Growth:
   • Total advances for HDFC Bank grew by 7% YoY to ₹24.95 lakh crore in Q2 FY25, showing consistent growth in lending activity. Domestic retail advances showed a robust increase of 11.3% YoY, with strong performance in retail mortgages (up 11.7%) and non-mortgage loans (up 10.7% YoY).
   • Total deposits grew by 15.1% YoY to ₹25 lakh crore, while the bank’s credit-deposit ratio decreased to 99.8% from 103.5% QoQ, highlighting strong deposit inflows.
   • The CASA (Current Account and Savings Account) ratio slightly declined to 35.3% in Q2 FY25, down by 100 bps QoQ. However, the retail segment remains strong, contributing to 84% of the total deposit base.

Asset Quality and Capital Adequacy

1. Gross and Net Non-Performing Assets (GNPA & NNPA):
   • GNPA increased slightly by 3 bps QoQ to 1.36% in Q2 FY25, while NNPA rose by 2 bps to 0.41%. Excluding the agricultural segment, the GNPA ratio stood at 1.19%, compared to 1.14% QoQ. While the retail GNPA ratio remained stable at 0.8%, the slight increase in NPAs indicates a marginal deterioration in asset quality.
   • Slippages during the quarter amounted to approximately ₹7,800 crore, up from ₹7,100 crore in the previous quarter. Recoveries and upgrades stood at ₹3,600 crore, while the bank wrote off ₹2,900 crore during the quarter.
2. Provisioning and Credit Costs:
   • Provisions for bad loans decreased by 7% YoY, although they were up by 3.8% QoQ to ₹2,700 crore. The bank’s credit cost for Q2 FY25 was 43 bps, marginally higher by 1 bps QoQ, reflecting increased provisioning to maintain a healthy balance sheet.
   • The provision coverage ratio (PCR) stood at 70%, slightly down from 71% in the previous quarter. HDFC Bank also holds contingent and floating provisions worth ₹13,800 crore and ₹12,400 crore, respectively, providing a buffer against potential asset quality challenges.
3. Capital Adequacy:
   • The bank maintained a Capital to Risk-Weighted Assets Ratio (CRAR) of 19.8% in Q2 FY25, well above the regulatory requirement, indicating a strong capital position. This ensures that the bank is adequately capitalized to absorb potential losses and continue its growth trajectory.

Loans and Deposits: Key Insights

1. Retail Segment:
   • Retail advances, which make up a significant portion of the bank’s loan book, continued to show strong growth. Retail mortgages accounted for 61% of total loans, while personal loans and auto loans contributed 15% and 11%, respectively. The consumer and rural banking (CRB) segment grew by 17.4% YoY, reflecting strong demand in rural areas.
2. Corporate Lending:
   • Corporate loans saw a minor decline of 2.8% QoQ, indicating subdued demand in the corporate segment. However, the bank’s focus on retail and consumer loans helped offset this decline.
3. Floating Rate Loans:
   • Approximately 70% of HDFC Bank’s loan book comprises floating-rate loans, which fluctuate based on changes in interest rates. This is a key factor in the bank’s ability to maintain profitability in a rising interest rate environment.

Efficiency and Liquidity

1. Liquidity Coverage Ratio (LCR):
   • HDFC Bank’s liquidity coverage ratio for Q2 FY25 was 128%, up from 123% in the previous quarter and 121% YoY. This indicates that the bank has sufficient liquidity to cover its short-term obligations, contributing to its overall financial stability.
2. Branch Expansion:
   • The bank added around 240 new branches during the quarter, which is part of its strategy to enhance its geographical footprint and customer reach.

Other Key Metrics

• Top 20 Borrower Exposure: The bank’s top 20 borrower exposure declined to 10.3% from 10.5% QoQ and 11% YoY, indicating a reduction in concentration risk.
• Wholesale Loans: Approximately 75.6% of wholesale loans were rated AA and above, reflecting the high credit quality of the bank’s corporate loan portfolio.

Future Outlook

HDFC Bank has provided a cautiously optimistic outlook for the coming years:

1. Loan Growth:
   • The bank expects loan growth in FY25 to be slightly below the industry average due to cautious lending practices. However, it aims to match industry growth levels in FY26 and surpass the industry in FY27.
2. Liquidity and Capital Adequacy:
   • The bank plans to maintain its liquidity coverage ratio within the range of 110%-120% over the medium term, ensuring that it has adequate liquidity to meet its obligations.
3. Profitability Focus:
   • HDFC Bank will continue to focus on improving margins, controlling costs, and maintaining asset quality to ensure sustained profitability. The management remains committed to driving growth while maintaining a conservative approach to risk management.

Conclusion

HDFC Bank’s Q2 FY25 performance highlights its ability to deliver consistent growth while maintaining strong profitability and a robust balance sheet. The bank has shown resilience in its asset quality and capital adequacy, despite slight increases in NPAs. HDFC Bank’s focus on retail lending, effective cost management, and liquidity position make it well-equipped to navigate a challenging macroeconomic environment.

With a clear strategy for future growth and a cautious approach to lending, HDFC Bank is well-positioned to continue its leadership in the Indian banking sector. Investors and stakeholders can expect the bank to maintain its profitability and growth momentum in the coming quarters.