HDFC Bank Ltd Quarterly Results Q1 FY 26 stock analysis

Home » Core Investor Group » HDFC Bank Ltd – Q1FY26 Result Update

Sector Outlook: Positive

Balanced Operating Metrics; Stake Sale Profit Used to Strengthen Provisions

HDFC Bank reported a mixed set of Q1FY26 results with balanced operating metrics and strategic use of stake sale profits to strengthen its provisions. Net Interest Income (NII) stood at ₹31,440 crore, down 2.0% QoQ but up 5.4% YoY. Pre-Provision Operating Profit (PPOP) surged 34.8% QoQ and 49.7% YoY to ₹35,780 crore, primarily driven by a one-time gain of ₹9,130 crore from the stake sale in HDB Financial Services. This gain significantly boosted other income. Provisions rose sharply to ₹14,400 crore, up 351.0% QoQ and 453.8% YoY, as the bank bolstered its balance sheet with ₹9,000 crore in floating provisions and ₹1,700 crore in additional contingent provisions. Net profit came in at ₹18,160 crore, up 3.1% QoQ and 12.3% YoY, but slightly missed street expectations. On the balance sheet front, the CASA ratio declined to 34%, while gross deposits rose 16.2% YoY to ₹27.64 lakh crore, indicating healthy deposit accretion. Advances grew 6.7% YoY to ₹26.28 lakh crore, with strong growth in retail (8.1%) and SME loans (17.1%). NIM compressed to 3.35%, down 11bps QoQ, impacted by rising deposit costs and rate cuts. Asset quality remained stable with GNPA/NNPA at 1.40%/0.50%, though both saw slight sequential upticks. Return on Assets (ROA) held steady at 0.48%, and the Capital Adequacy Ratio improved to 19.88%. Additionally, the bank announced a special interim dividend of ₹5 per share and a 1:1 bonus issue. HDB Financial Services had a strong quarter, and the successful stake sale not only supported profit growth but also helped fortify the group’s financial position.

Key Concall Highlights

HDFC Bank reported a marginal rise in asset quality metrics, with GNPA and NNPA increasing by 7bps and 4bps QoQ to 1.4% and 0.5%, respectively. The Provision Coverage Ratio (PCR) remained stable at 66.9%. The credit cost for Q1FY26 was elevated due to seasonal agricultural trends but is expected to remain benign going forward. The bank also made additional contingent provisions of ₹17 billion, accounting for 57 basis points of the loan book. On the advances and deposits front, rural demand continues to be strong with positive inquiries, while urban markets showed slight fatigue, though festive season activity is expected to boost growth. The MSME segment remains buoyant and is a key focus area. Although there has been no significant pickup in private capex yet, the bank is committed to participating across segments. The mortgage business remains competitive, especially against public sector banks. Operationally, the bank added 4,300 employees in Q4 due to new branch openings, with no layoff plans. HDFC Bank continues to lead on cost-to-asset metrics and is investing in technology and talent to improve productivity, while maintaining tight cost controls aligned with long-term efficiency. In terms of priority sector lending (PSL), the bank remains focused on the Small and Marginal Farmer (SMF) segment through instruments like IBPCs, PTCs, and PSLCs, and is confident of meeting the 40% PSL requirement. On the income side, fee income was lower due to subdued third-party distribution, but the full-year outlook remains healthy. Margins have not yet factored in the June 2025 rate cut of 50bps, as pricing effects typically take 1–3 months to materialize.

Valuation and Outlook

HDFC Bank delivered a steady performance in Q1FY26, though net profit came slightly below expectations due to additional buffer provisions. NIMs declined marginally, in line with management guidance, and with the current rate cycle, meaningful NIM improvement looks unlikely in the near term. Credit growth was moderate as the bank strategically focused on reducing its Credit Deposit Ratio (CDR), resulting in slower loan growth compared to peers. However, deposit growth remained strong throughout the quarter, ensuring a stable funding base. Asset quality remained robust, with stable GNPA and NNPA levels reflecting disciplined underwriting practices. The bank remains committed to maintaining best-in-class asset quality through calibrated lending practices. Subsidiaries continued to play a critical role in the group’s performance. HDFC Life and HDFC AMC delivered steady results, offsetting some of the pressures from HDB Financial. HDB Financial Services reported healthy core lending growth; however, the stake sale during the quarter resulted in a one-time gain of Rs. 9,130 crores, temporarily boosting profits. Overall, HDFC Bank’s Q1FY26 results reflect a balanced approach amid macroeconomic challenges. We will closely track the management’s strategy for FY26, particularly in deposit mobilization, risk management, and subsidiary performance.