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HDFCB saw a steady quarter as core PPoP was largely in-line. While NII met estimates, higher fees were offset by more provisions (ageing related). Adjusted for FCNR, loan growth at 3.4% QoQ was lower than ICICIB/AXSB. While reported NIM fell by 8bps QoQ to 3.32%, as per our calculations, adjusted for the FCNR impact NIM was flat to positive. As per the bank, NIM has bottomed out and may improve from the next quarter, driven by shift in credit flow towards retail/SME from corporate/home loans and impact of rate hike in Oct’26. Mr. Anup Bagchi’s strategy for the bank would be a key monitorable. We keep multiple at 1.9x on Sep’26 core ABV and keep TP at INR 950. Retain ‘BUY’

Stable quarter with core PPoP in-line; slight miss on provisions: NII was largely in-line at INR346.2bn (PLe INR345.4bn). NIM (calc.) was in-line at 3.40% (PLe 3.39%); reported NIM was down 8bps QoQ to 3.32%. Loan/deposit growth, as expected was 16.4%/18.8% YoY. CASA ratio was stable at 31.6% (32.3% in Q1FY27); LDR was flat QoQ at 96%. Other income was a slight miss at INR138.3bn (PLe INR140.6bn) due to others; fee was 2.5% higher at INR112.4bn. Opex at INR189.7bn was 1.2% more due to higher staff cost. Core PPoP at INR268.9bn was largely in-line; PPoP was INR294.8bn. GNPA was 1.11% (PLe 1.13%) with lesser net slippages. Gross slippage was lower at INR61bn; recoveries were INR37bn. Provisions were a drag at INR35.7bn (PLe INR32.6bn). Core PAT was 1.7% below PLe at INR175.6bn; PAT was INR195.1bn.

Loan growth led by RAM; LDR remains high: Loan growth was 5.2% QoQ mainly led by retail (6.6%), SME i.e. BuB (7.7%) and agri (5.9%). BuB growth was driven by disbursals of INR410bn under ECLGS 5.0 that was highest among banks. Corporate growth was 16.4% YoY driven by balanced mix of WC, term loans and project finance. Within retail, there is a consistent pick-up in auto, PL/CC loans. Bank garnered FCNR(B) deposits of INR1.1trn with leveraged portion in overseas loans being INR548bn. Adjusted for same, loan growth at 3.4% was lower than ICICIB and AXSB. LDR remains elevated at 96%, which may constrain loan growth in near term.

NIM likely to recover from the next quarter: As per our calculations, adjusted for FCNR, NIM would have been flat to positive QoQ. Floating rate book is 70% of loans and rate hike of 25bps in Oct’26 will be factored in Dec’26. As per bank, NIM has bottomed out; NIM from next quarter would be supported by impact of rate hike and favorable shift towards retail/MSME lending over corporate and home loans

Q2FY27 Concall

Highlights Balance sheet

• The bank disbursed INR 410bn under ECLGS 5.0, highest among banks, thus leveraging opportunities.

• Business banking (largely MSME) grew 28% YoY, supported by ECLGS 5.0, with management expecting sustained momentum alongside retail recovery, Corporate advances grew ~16.5–17% YoY, with a focus on a balanced mix of working capital, term loans and project finance, while maintaining portfolio returns.

• Retail disbursements crossed INR 900bn in Q2 (vs INR 760bn in Q1), balanced across PL, wheels, gold, agri and MSME. Floating rate book is ~70% of the total book. Card issuances were 1.4mn (+19% QoQ).

• Bank indicated that overall PSL achievement is ~50%, with the key challenge being the small and marginal farmer and weaker section sub-targets. Given limited market availability and high acquisition costs, the bank is seeking to bridge the shortfall through both organic origination and market purchases.

• Bank garnered FCNR(B) deposits of INR1.1trn with leveraged portion in overseas loans being INR548bn Branch-driven deposits account for ~80% of total deposits.

• Aim to maintain LCR in the 110–120% range, with a preferred level of ~115% (Currently ~113%).

• Mr. Kaizad Bharucha (Deputy Managing Director) has sought early retirement by 31st Dec’26. Incoming MD & CEO Mr Anup Bagchi said his near-term focus is to engage with regulators, customers, shareholders and other stakeholders for insights, and he will soon present a perspective on growth, margins, quality, and productivity built on disciplined capital deployment.

Profit & loss

• Management expects NIMs to reverse supported by the rate-cycle tailwind and a favourable shift towards retail and MSME lending over corporate and home loans. The 25bps October rate hike will be reflected for only part of Q3FY27 (effectively from Dec’26), offsetting the full-quarter FCNR(B) cost impact, with margins expected to be neutral-to-positive.

• Interest expense increased sequentially primarily due to higher TD accretion and FCNR(B) deposit, which offset the benefit of repricing of existing deposits. Also Relief from AT1 bonds called in August was offset by borrowings raised for leverage.

• Expect headcount to remain broadly stable in the near term, with a gradual shift from backend roles towards frontline and technology. However, sustained growth and digitisation/AI-led investments could drive incremental hiring, with headcount potentially increasing over the next 3–4 years.

• Management said that the draft insurance policy is under consultation, with comments due in November. Key factors to assess include potential improvement in policy persistency, higher participation and volumes driven by lower insurance costs, cost optimisation to address changes in commission structures

Asset quality

• Slippage improvement is broad-based across portfolios, not driven by shift towards corporate.

• Despite deficient and uneven monsoon, kharif sowing declined marginally by 1.5-2% YoY. Agri GNPA remained broadly stable in Q2FY27 vs Q1FY27, with agricultural loan growth in single digits

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