ICICI Securities has started tracking HDB Financial Services, citing a 15% return on equity and steady net interest income growth. The brokerage expects the company to benefit from its HDFC Bank parentage while noting improvements in asset quality. Investors are tracking how the non-banking lender manages credit costs and maintains its growth trajectory in a competitive market.
ICICI Securities has released a report initiating coverage on HDB Financial Services, a non-banking finance company promoted by HDFC Bank. The analysis highlights several operational metrics, including a return on equity (RoE) that reached approximately 15% in the first quarter of the 2027 fiscal year, up from 13.2% in the same period a year ago.
Financial and Operational Performance
The company reported a 20% year-on-year increase in its net interest income, which is the difference between interest earned on loans and interest paid on deposits or borrowings. This growth occurred alongside a reduction in the company's cost-to-income ratio by over 250 basis points. The cost-to-income ratio measures how efficiently a company operates by comparing its expenses to its income; a lower figure typically suggests better operational efficiency. During this period, credit costs—the amount a lender sets aside to cover potential losses from unpaid loans—remained steady at 2.4%.
Asset Quality and Market Context
Asset quality is a critical metric for any lender. HDB Financial Services reported that its gross stage 3 assets, often referred to as gross non-performing assets, declined to 2.34% in the first quarter of fiscal year 2027. This improvement is notable as the broader non-banking financial sector has faced ongoing pressure from rising interest rates and economic volatility. Analysts often point to the company's relationship with HDFC Bank as a factor that provides stability in funding and business operations, helping it maintain a competitive position against other private and public sector lenders.
Growth Outlook and Monitorables
The brokerage anticipates that HDB Financial Services can sustain an RoE above 15% in the coming quarters. Furthermore, projections suggest that the company’s loan book could grow at a compound annual growth rate of 17-18% between fiscal years 2026 and 2028. For investors, the long-term performance will depend on the company’s ability to manage its loan book quality while expanding in a high-interest rate environment.
The most important factors to watch next include the company's ability to maintain its asset quality metrics and whether credit demand remains strong enough to support the projected loan growth. Investors may also track management commentary on how they plan to balance aggressive expansion with the need to keep credit costs under control, especially if the broader economic environment shows signs of strain.