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Loan growth gaining traction; NIM dips 12bp QoQ Asset quality steady

* HDFC Bank (HDFCB) reported a 1QFY27 profit of INR190.6b (+5% YoY/-1% QoQ; in line), aided by an in-line NII and lower-than-expected LLP.

* NII grew 6.7% YoY/1.4% QoQ to INR335.3b while NIMs on total assets declined sharply by 12bp QoQ to 3.26%.

* Other income declined 3% QoQ to INR128.2b (4% miss), amid lower fee income and muted treasury income (gains of INR4b vs. INR101b in 1QFY26).

* Advances book jumped 15.6% YoY/3.4% QoQ to INR30.4t. Deposits grew 14.7% YoY/2.1% QoQ to INR31.7t. CD ratio increased to 95.8%.

* Fresh slippages stood at INR80b, amid agri-seasonality. GNPA/NNPA stood flat at 1.17%/0.41%. PCR declined to 66% (down 100bp QoQ).

* We cut our earnings estimates for FY27/28E and project HDFCB to deliver an FY28E RoA/RoE of 1.84%/14.7%. Reiterate BUY with a TP of INR1,050 (based on 2.1x FY28E ABV + INR128 for subsidiaries).

Growth outlook improving; asset quality stable

* HDFCB reported 1QFY27 profit at INR190.6b (+5% YoY/-1% QoQ; in line), amid an in-line NII and lower-than-expected LLP.

* NII grew 6.7% YoY to INR335.3b (inline). NIM dipped 12bp QoQ to 3.26%.

* Other income declined 3% QoQ to INR128.2b (4% lower than MOFSLe), amid muted treasury gains and lower fee income.

* Opex grew 4.3% YoY/dipped 1.6% QoQ to 181.9b. C/I ratio thus declined to 39.2% (down 70bp QoQ) ? PPoP grew 1.3% QoQ to INR281.7b (down 21% YoY). Provisions inched up by 17% QoQ to INR30.6b. Credit costs rose to 40bp in 1QFY27.

* Advances book grew 15.6% YoY/3.4% QoQ to INR30.4t. Retail loans inched up 7.2% YoY/1% QoQ, while the SME jumped 19% YoY/3.8% QoQ. The corporate book growth was healthy at 19% YoY/ 3.6% QoQ.

* Deposits grew 15% YoY/2% QoQ to INR31.7t. CASA deposits declined 3% QoQ (up 9% YoY); consequently, the CASA ratio declined 180bp QoQ to 32.3%, and the CD ratio inched up 120bp QoQ to 95.8% in 1QFY27.

* The GNPA ratio increased 2bp QoQ to 1.17%, and the NNPA ratio rose 3bp QoQ to 0.41%. Slippages increased 29% QoQ to INR80b, amid the seasonality impact in 1QFY27. PCR declined to 66% (down 100bp QoQ).

* The capital position remained strong, with a CET1 ratio of 17.4%; total CAR came in at 19.6%.

* Subsidiary performance: HDB Financial reported loan growth of 11% YoY/ 3% QoQ to INR1.22t, while PAT increased 5% QoQ to INR7.9b. GS3 assets improved 10bp QoQ to 2.34%, while CAR was 21.3%. HDFC Securities: Revenue grew ~30% YoY to INR9.5b, while PAT rose 30% YoY to INR3.0b.

Valuation and view: Reiterate BUY with a TP of INR1,050

HDFCB reported a largely in-line quarter, supported by healthy business growth and lower provisions, although NIM remained the key miss, contracting 12bp QoQ. Loan growth was driven by the SME and corporate segments, while retail loan growth remained relatively modest. Deposit growth stayed healthy at 14.7% YoY and 2.1% QoQ, resulting in the CD ratio inching up to 95.8%. We expect the CD ratio to gradually moderate to ~92–93% by FY28E through calibrated balance sheet management. The bank continues to maintain contingency and floating provisions of INR156b and INR214b, respectively. NIM contracted sharply by 12bp QoQ to 3.26%. However, a meaningful scope for improvement remains as INR400–500b of highcost borrowings mature over the next two years, which should support a decline in funding costs. Combined with improving operating leverage, this is expected to support a gradual improvement in profitability and return ratios over the coming years. We cut our earnings estimates for FY27/28E by 2% each and project HDFCB to deliver an FY28E RoA/RoE of 1.84%/14.7%. Reiterate BUY with a TP of INR1,050 (2.1x FY28E ABV + INR128 for subsidiaries).

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