Disbursements Down, HDFC Bank Says Can’t Chase Volume At “Unsustainable Rates"

HDFC Bank deliberately slowed loan growth in 2024-25 to prioritise strengthening its liabilities, Chief Financial Officer Srinivasan Vaidyanathan said in a post earnings media call. This move led to a healthier credit-deposit ratio, which declined to 96% in March 2025 from 104% a year earlier. The long-term goal is to further reduce this to 85-90% by financial year 2026-27, a level consistent with pre-merger with Housing Development Finance Corp.

While HDFC Bank’s loan growth has trailed the industry average of 11% this year, Vaidyanathan signaled that the bank plans to match system-level growth in 2025-26 and outpace it in the next fiscal year to gain market share. Signalling a return to a more aggressive lending stance once balance sheet metrics are optimised.

However, pricing pressures continue to challenge the bank’s ability to disburse loans competitively, especially in the home loan segment, which comprises 30% of the bank’s ₹26.43 trillion book. Disbursements were down by nearly 20% due to rivals offering rates as low as 8.1–8.2%, which HDFC Bank deems unsustainable.

“We are very circumspect on pricing. Our disbursals are down 19–20% because we won’t chase volumes at unsustainable rates,” Vaidyanathan said. He also pointed to dampened demand in the lower- and middle-income housing segment due to inflation eroding disposable incomes, which, in turn, has curtailed supply in this price-sensitive segment.

The pricing pressure isn’t limited to retail. In the corporate lending space, Vaidyanathan noted a continued squeeze due to aggressive rates offered by state-run banks. “Profitability appears to be taking a back seat to growth,” he remarked, adding that pricing is no longer the top priority in the corporate borrower segment.

Despite these challenges, the bank sees stronger loan growth potential in retail, backed by its expanded presence in over 700 districts across the country. This geographic reach provides access to untapped markets, which HDFC Bank aims to leverage in the coming years.

On the margin front, HDFC Bank is focused on maintaining net interest margins within a narrow range. For the January-March quarter, NIM on total assets stood at 3.54%, slightly down from the 3.6–3.7% range seen post-merger with HDFC. Vaidyanathan emphasised that the bank actively manages margins over a longer horizon and expects to keep them stable despite quarterly fluctuations.

The bank's net profit grew 6.7% on year to ₹176.16 billion in the March quarter, aided by a 76% drop in provisions, which stood at ₹31.93 billion. The cost-to-income ratio remained steady at 1.9% throughout 2024-25.