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HDFC Bank reported PAT of Rs195bn/ROA of 1.8%, broadly in line with our estimates. PPOP grew 5.6% yoy/4.7% qoq, while core PPOP grew 12.4% yoy/3.4% qoq. Loan growth improved further to 16.4% yoy, driven by broadbased growth across segments and a pickup in retail, while growth excluding FCNR(B) leverage remained healthy at 14.4% yoy. Deposit growth was strong at 18.8% yoy/4.9% qoq, supported by FCNR(B) flows. NIM declined by 8bps qoq to 3.3% due to FCNR(B) funding and stable COF; the recent rate hike should provide support, partly offset by the full-quarter impact of FCNR(B), keeping margins broadly stable in 3Q. We believe the appointment of a new MD and CEO should resolve the prolonged succession overhang and help restore customer and investor confidence. Following the stock’s sustained underperformance, valuations have turned attractive, offering scope for a sustained re-rating as the new leadership makes progress on key priorities and geopolitical uncertainties ease, potentially moderating or reversing FPI outflows (refer to our note: Link). We reiterate BUY on HDFCB with unchanged TP of Rs1,050 (2.0x Sep-28E ABV + Rs121/sh for subsidiaries).

Healthy business growth; margin decline qoq

HDFCB’s credit growth continued to improve, rising 16.4% yoy/5.2% qoq, driven by the SME and corporate segments. Retail growth also picked up, to 11.7% yoy/6.5% qoq, supported by broad-based growth across products after remaining subdued in previous quarters. Credit growth excluding FCNR(B) leverage remained healthy at 14.4% yoy/3.4% qoq. Deposit growth was strong at 18.8% yoy/4.9% qoq, led by robust TD accretion amid strong FCNR(B) flows, while CASA grew 10.8% yoy/2.6% qoq, resulting in CASA ratio of 31.6%. Retail deposits were stable, at 80% of total deposits. NIM declined by 8bps qoq to 3.32%, reflecting the FCNR(B) impact and stable costs. While the recent rate hike is expected to support margins, the full-quarter impact of FCNR(B) funding is likely to offset part of the benefit, keeping margins broadly stable in 3Q.

Asset quality continues to improve

Slippages moderated to Rs61bn (0.9% of loans), while better recoveries and write-offs drove a 6bps qoq decline in GNPA to 1.1%. Specific PCR improved to 67%, although it remains below the optimal level of ~70%. The management has not observed any material stress or deterioration in agri asset quality so far, but will continue to monitor the impact of uneven monsoon distribution on crop yields and farm incomes.

We retain BUY and TP of Rs1,050

We largely retain our earnings estimates and expect ROA to steadily improve (1.8-1.9% over FY27-29E). We maintain BUY with unchanged TP of Rs1,050 (valuing the standalone bank at 2.0x Sep-28E ABV and subsidiaries at Rs121/share). Key risks: Slower-thanexpected growth due to macro weakness and KMP attrition.

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