HDFC Bank Q1 profit seen up 6% as loan growth offsets flat margins
India's largest private lender is expected to post a 6% rise in first-quarter profit driven by double-digit loan growth, though flat margins and weak non-interest income highlight ongoing challenges for the stock.
HDFC Bank is expected to report a net profit of around ₹19,226 crore for the April-June quarter, a 5.9% increase from a year earlier, according to Motilal Oswal Financial Services. Analysts at Axis Securities offer a slightly higher estimate of ₹19,484 crore, representing 7.3% growth. The results, scheduled for release today, reflect a mixed quarter for India's largest private sector lender.
The underlying lending business shows healthy momentum. Loan growth is projected at 14.5% year-on-year, driven by corporate, business banking, agriculture, and gold loans, while mortgage growth lags. This expansion is expected to push net interest income up 8.5% to ₹34,110 crore.
However, this loan growth is not translating into margin expansion. Net interest margins are forecast to remain flat sequentially, pressured by interest reversals tied to seasonal stress in the agriculture segment. Pre-provisions operating profit is expected to fall 20% year-on-year to roughly ₹28,600 crore.
Non-interest income will act as a further drag on overall earnings. “Non-interest income is expected to fall 39.4% YoY and decline 0.2% QoQ. The sharp decline is due to the high base of Q1 FY26, when the bank booked gains from the HDB Financial Services stake sale,” said Axis Securities. Provisions are estimated to drop nearly 79% year-on-year to ₹3,044 crore, but only because the year-ago quarter included one-time floating provisions of ₹90 billion and a ₹17 billion contingency buffer.
Asset quality provides a constructive signal amid the earnings noise. The gross non-performing assets ratio is anticipated to improve to 1.1% from 1.2% in the previous quarter, with the net NPA ratio holding steady at 0.4%. Slippages and provisions are expected to creep up slightly on a quarterly basis, but the overall credit profile remains stable.
Despite these steady operational metrics, the stock's trajectory underscores lingering investor caution regarding the lender's profitability levers. While shares have gained 4% in the past month, they have declined 12% over six months and 17% over the past year. Even over a three-year horizon, the stock is down 2%.
For institutional investors, the critical metric remains net interest margin. Until the bank can demonstrate an ability to translate its formidable loan growth into higher spreads, the valuation is likely to remain compressed. Cost ratios are expected to be contained through operating leverage, but this alone may not be enough to satisfy markets demanding stronger returns.
