HDFC Bank Misses Deposit Goals, Flags Broad Lending Targets

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AuthorAnanya Iyer|Published at:
HDFC Bank Misses Deposit Goals, Flags Broad Lending Targets
Overview

HDFC Bank's chief acknowledged missing deposit growth ambitions, setting a wide range for credit-to-deposit targets amid an uncertain environment. The bank aims to lower its post-merger ratio from nearly 99% to below 90% by FY27 for sustainable profitability amidst evolving interest rate dynamics.

The bank's credit-to-deposit ratio currently stands at 98.7% as of the December 2025 quarter (Q3 FY26). Chief Financial Officer Srinivasan Vaidyanathan outlined a strategic glide path to bring this ratio down to 92-96% for the current financial year and further improve it to 85-90% by FY27. This adjustment is critical for sustainable profitability, Jagdishan emphasized, acknowledging the need to participate in the country's credit growth focus by providing funding at rational rates.

Post-Merger Funding Hurdles

The challenge is amplified for HDFC Bank following its merger with parent HDFC. The combined entity inherited a credit-to-deposit ratio that surged to approximately 110%, largely due to HDFC's prior reliance on borrowings. Pre-merger, the bank operated comfortably within an 87-88% ratio. HDFC Bank had anticipated replacing its parent's borrowings with lower-cost, granular deposits post-merger. However, regulatory shifts, including a 40 basis point repo rate hike by the Reserve Bank of India (RBI) within a month of the merger in response to supply disruptions, significantly altered the funding cost landscape. This was followed by a cumulative tightening of 250 basis points.

Navigating Easing Cycles

Now, with the RBI in a rate-easing cycle and a substantial portion of HDFC Bank's loan book tied to floating rates, the bank faces a dual challenge. It must accelerate deposit growth to outpace loan expansion while simultaneously working to reduce overall funding costs. This delicate balancing act is essential to maintain profitability and competitive positioning in an evolving market.

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