HDFC Bank Shares Drop 1.9% Despite Strong Q3 Loan Growth

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AuthorIshaan Verma|Published at:
HDFC Bank Shares Drop 1.9% Despite Strong Q3 Loan Growth
Overview

HDFC Bank's stock declined Monday, contributing to the Nifty 50's fall, despite a strong December quarter update. The lender reported 12% loan growth, the first double-digit rise post-merger. However, the market reacted negatively to a Loan-Deposit Ratio nearing 99%, exceeding the bank's target and raising concerns over future growth constraints.

HDFC Bank Faces Market Selloff Amidst Growth Update

HDFC Bank Ltd. shares succumbed to selling pressure on Monday, ranking among the top Nifty 50 index losers. This downturn occurred even as the bank released a robust quarterly update for the period ending December 31. The lender's performance marks a significant milestone post its merger with HDFC Ltd.

The bank announced a 12% year-on-year increase in its loan book for the December quarter. This signifies the first instance of double-digit growth on a normalized base since the integration with HDFC Ltd. Deposit growth kept pace with advances, registering an 11.5% rise compared to the previous year.

Regulatory Headwinds Surface

Despite the positive growth figures, market analysts pointed to the escalating Loan-Deposit Ratio (LDR) as the primary concern. The LDR has climbed by 50 basis points this quarter, reaching nearly 99%. This figure starkly contrasts with the management's stated objective of reducing the ratio to below 90% in the near term.

A higher LDR indicates that a larger proportion of deposits are being deployed as loans, making deposits a critical constraint on further expansion. This situation is exacerbated by HDFC Bank's increased LDR post-merger.

Future Growth Outlook Uncertain

The surge in LDR casts a shadow over the bank's growth projections for the upcoming financial year. Management had previously signaled expectations for financial year 2027 to see growth exceeding industry averages. The current LDR levels now challenge the feasibility of these ambitious targets.

HDFC Bank shares traded down 1.9% at ₹982.7 on Monday. The stock's decline was a significant drag on the broader market, contributing over 40 points to the Nifty 50's downside.

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