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HDFC Bank (CMP - ₹1012, Mcap - ₹15,54,115 crore, Target price – 1200, Rating - BUY) – “Steady quarter, balancing between growth and profitability…”

ICICIdirect Research 24 Oct 2025 DISCLAIMER

HDFC Bank reported a steady Q2FY26 performance, with advance growth reviving at 9.9% YoY (4.4% QoQ) to ₹27.7 lakh crore, led by strong traction in small & mid-markets (17% YoY), while corporate demand remained selective and deposits up 12.1% YoY (1.4% QoQ) to ₹28 lakh crore with focus on CASA at ~34%. NIM contracted 8 bps QoQ to 3.27% due to lagged deposit repricing. Management reiterated system aligned growth in FY26 and aims to outpace the industry from FY27E, supported by festive-season lending, rural recovery, and stronger retail traction.

Asset quality remained strong and range-bound, with GNPA improving to ~1.24% aided by upgrades and healthy recoveries. Credit cost moderated to ~51 bps (vs 56 bps QoQ), within guided range. The bank augmented its balance sheet strength with ₹1,600 crore of contingent, taking total contingent coverage to ~57 bps of loans.

RBI’s relaxation allowing banks to fund cross-border M&As also opens a new, selective growth opportunity on the corporate side. Consequently, growth trajectory is seen to normalize gradually, supported by steady credit momentum, improving liabilities mix, and strong capital position. Margins are likely to stabilize in H2FY26 as deposit repricing benefits accrue, while operating leverage and healthy asset quality will underpin earnings recovery. Factoring RoA of ~1.8% FY27E and healthy profitability outlook, we remain optimistic on valuation.

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