Healthy Loan and Deposit Growth, Improving Balance Sheet and Positive Brokerage Views Lift Investor Confidence Despite Margin Headwinds

India's largest private sector lender, HDFC Bank, witnessed strong buying interest on Monday after releasing an encouraging provisional business update for the first quarter of FY2026-27. The update highlighted healthy expansion in loans and deposits, reaffirming the bank's ability to maintain steady growth despite a competitive banking environment and lingering integration challenges following its merger with Housing Development Finance Corporation (HDFC).

The stock gained nearly 2% in early trade, touching an intraday high of ₹819.60 on the National Stock Exchange (NSE). Investors responded positively to the bank's continued business momentum, while several brokerage firms reiterated their constructive long-term outlook, citing strong fundamentals and improving operational efficiency.

The latest update comes at a time when investors are closely tracking quarterly business performance across the banking sector to gauge the impact of changing interest rates, credit demand and liquidity conditions.

Strong Loan Growth Reflects Healthy Credit Demand

HDFC Bank reported gross advances of approximately ₹30.61 trillion as of June 30, 2026, representing a 15.4% year-on-year increase from ₹26.53 trillion recorded a year earlier. Compared with the March quarter, advances expanded 3.4%, indicating sustained demand across retail, commercial and corporate lending segments.

The growth demonstrates that credit demand remains resilient despite elevated borrowing costs and cautious business spending in certain sectors. Analysts believe the bank's diversified loan portfolio and strong customer franchise continue to support consistent expansion.

The bank's Advances Under Management (AUM) also maintained healthy momentum, increasing 12.4% year-on-year to ₹31.27 trillion. On a sequential basis, AUM grew 2.3%, reflecting continued traction across lending businesses.

Average AUM during the quarter reached ₹30.39 trillion, up 10.8% from the corresponding period last year, further highlighting stable business performance.

Deposits Continue to Strengthen Funding Profile

On the liabilities side, HDFC Bank reported total deposits of ₹31.71 trillion, marking a 14.7% year-on-year increase and a 2.1% sequential rise.

The strong deposit growth is significant as banks across the industry continue to compete aggressively for customer deposits amid tight liquidity conditions.

Current Account and Savings Account (CASA) deposits stood at ₹10.26 trillion, registering 9.4% annual growth, although they declined 3.3% quarter-on-quarter due to seasonal factors and a greater preference for higher-yielding term deposits.

Meanwhile, time deposits increased 17.4% year-on-year to ₹21.45 trillion, reflecting customers' continued preference for fixed-income products in the prevailing interest rate environment.

Despite the moderation in CASA deposits, analysts believe HDFC Bank's funding mix remains among the strongest in the Indian banking industry.

Credit-Deposit Ratio Indicates Continued Lending Momentum

The bank's Credit-Deposit (CD) Ratio increased to 95.8%, compared with 94.6% at the end of the March quarter.

A higher CD ratio indicates that the bank continues to deploy deposits efficiently to support loan growth. However, analysts will continue monitoring deposit mobilisation and liquidity trends to ensure sustainable balance sheet expansion.

Brokerages Maintain Positive Outlook

Leading brokerage houses broadly welcomed the quarterly business update and maintained optimistic long-term views on the stock.

ICICI Securities: Growth Story Remains Intact

ICICI Securities noted that HDFC Bank's advances and deposits continued to record healthy sequential growth, indicating stable operational momentum.

The brokerage acknowledged the quarter-on-quarter decline in CASA deposits but emphasised that the overall funding profile remains comfortable and does not materially alter the bank's structural growth outlook.

According to the brokerage, several factors continue to support HDFC Bank's long-term earnings potential:

• Stable asset quality

• Improving operating efficiency

• Strong provisioning buffer

• Controlled operating expenses

• Continued investments in technology and digital banking

• Healthy capital position

ICICI Securities expects the bank to generate Return on Assets (RoA) of around 1.8%–1.9% over FY27-FY28 and has retained its 'Buy' recommendation with a target price of ₹1,050.

Motilal Oswal: Loan Growth Beats Expectations

Analysts at Motilal Oswal Financial Services highlighted that HDFC Bank's loan growth marginally exceeded market expectations, while deposit growth remained broadly in line with estimates.

The brokerage expects Net Interest Margins (NIMs) to witness a slight contraction during the June quarter due to the higher share of term deposits, which currently account for nearly 66% of total deposits.

Nevertheless, the brokerage believes the bank remains well-positioned to deliver healthy earnings growth over the medium term, supported by strong credit demand and prudent balance sheet management.

Elara Capital: Limited Downside, Attractive Long-Term Opportunity

Elara Capital observed that the bank has spent the past two years managing the integration process following its merger with HDFC, resulting in temporary pressure on profitability and valuation.

However, the brokerage believes HDFC Bank now offers an attractive long-term investment opportunity with limited downside, supported by expected RoA of 1.8%–1.9% and Return on Equity (RoE) of 14%–15% over the coming years.

While valuation re-rating may take time, analysts believe improving operational performance should gradually strengthen investor confidence.

Stock Performance Shows Signs of Recovery

HDFC Bank has been one of the stronger-performing banking stocks over the past month, gaining nearly 10%, significantly outperforming the benchmark Nifty 50, which has advanced around 4% during the same period.

Despite this recent rebound, the stock remains down approximately 17.5% since the beginning of 2026, reflecting investor concerns following the merger and the changing interest rate environment.

The latest business update suggests that the bank is gradually overcoming these challenges and returning to a more stable growth trajectory.

Investors Await Detailed June Quarter Earnings

While the provisional business update provides encouraging signals, market participants are now focused on the bank's detailed financial results, which will offer greater insight into profitability and asset quality.

Key metrics investors will closely monitor include:

• Net Interest Income (NII)

• Net Interest Margin (NIM)

• Gross and Net Non-Performing Assets (NPAs)

• Credit costs

• CASA ratio

• Operating expenses

• Provision coverage ratio

• Management commentary on loan demand and deposit growth

These indicators will play an important role in determining the bank's earnings outlook for the remainder of FY2027.

Banking Sector Outlook Remains Positive

The broader banking sector continues to benefit from healthy credit demand, improving economic activity and resilient consumer spending. While competition for deposits remains intense, leading private sector banks with strong franchises are expected to maintain healthy growth.

Analysts believe banks with diversified loan books, robust capital buffers and strong digital capabilities are likely to outperform as India's economic growth supports continued expansion in retail and corporate lending.