HDB Financial Services Limited (NSE: HDBFS, BSE: 544429) reported a marginal decline in profitability for the quarter ended September 30, 2025, as rising provisioning costs counterbalanced a healthy expansion in loan book and core income. The non-deposit taking non-banking financial company (NBFC), a subsidiary of HDFC Bank Limited, posted a 1.7% year-on-year drop in net profit to ₹581 crore in Q2 FY26, compared to ₹591 crore in the same period last year. The decline in earnings occurred despite double-digit growth across loan segments and a sharp increase in net interest income.
This was the company’s second quarterly earnings disclosure as a publicly listed entity after its market debut on July 2, 2025. The results were reviewed and approved by the Board of Directors at a meeting held in Mumbai on October 15, 2025.
How has HDB Financial Services performed across its core lending and interest income metrics in Q2 FY26?
During the quarter, gross loans grew to ₹1,11,409 crore, marking a 13% rise from ₹98,624 crore in Q2 FY25. The company’s total assets under management (AUM) stood at ₹1,11,721 crore as of September 30, 2025, up 12.8% from ₹99,076 crore a year earlier.
Net interest income surged to ₹2,192 crore in Q2 FY26, reflecting a 19.6% year-on-year increase. This growth was underpinned by a steady rise in disbursements across HDB Financial Services’ three primary lending verticals—Enterprise Lending, Asset Finance, and Consumer Finance.
Total net income for the quarter reached ₹2,851 crore, up from ₹2,408 crore in the corresponding quarter of FY25. The company also reported a pre-provisioning operating profit of ₹1,530 crore, a sharp 24.4% jump over ₹1,230 crore in Q2 FY25, indicating continued cost discipline and margin expansion.
However, loan losses and provisions spiked to ₹748 crore, compared to ₹431 crore in the year-ago period, exerting downward pressure on overall profitability. As a result, profit before tax (PBT) stood at ₹782 crore, marginally below the ₹799 crore reported in Q2 FY25.
What do rising non-performing assets and credit costs reveal about the NBFC’s risk profile in the current macro environment?
One of the more concerning aspects of the Q2 FY26 performance was the deterioration in asset quality. HDB Financial Services reported that Gross Stage 3 loans rose to 2.81% of the total loan book as of September 30, 2025. This compares with 2.10% a year earlier and 2.56% reported in the preceding quarter ending June 30, 2025.
Net Stage 3 loans also increased to 1.27%, from 0.83% in Q2 FY25. Provision Coverage Ratio (PCR) on Stage 3 assets decreased to 54.73%, down from 60.69% a year earlier. This sequential decline in PCR suggests a higher degree of net NPA exposure on the books and a more conservative provisioning stance may be warranted if delinquency trends continue.
The credit cost as a percentage of total gross loans rose to 2.7%, up from 1.8% in Q2 FY25. This uptick indicates that portfolio stress, particularly in unsecured or high-yield lending, may be creeping higher even as loan originations remain robust.
From an institutional perspective, the asset quality trajectory could weigh on short-term sentiment unless stabilized in the second half. Analysts and fund managers tracking NBFCs are likely to scrutinize this trend closely in the context of overall sectoral exposure to retail delinquencies, especially as consumer credit growth in India has surged post-pandemic.
How has the loan portfolio mix shifted and what does it signal about business strategy?
HDB Financial Services continues to maintain a diversified loan portfolio. For Q2 FY26, the enterprise lending vertical accounted for 38% of the total book, compared to 40% a year earlier. Asset finance contributed 38%, while consumer finance expanded its share to 24%, up from 23% in the same quarter last year.
Notably, the secured loans mix remained stable at 73%, indicating that a majority of the company’s book is still backed by collateral. The shift towards consumer finance, however, reflects an increased focus on higher-yielding products, albeit with elevated risk.
The strategy to grow in retail and microfinance segments appears deliberate, given the rising disposable income in Tier II and Tier III markets. However, the company will need to balance this with prudent risk controls as unsecured retail lending continues to attract regulatory oversight.
What are the key takeaways from H1 FY26 performance and year-to-date trends?
For the six-month period ended September 30, 2025, HDB Financial Services posted a profit after tax of ₹1,149 crore, compared to ₹1,173 crore in H1 FY25. This 2% year-on-year dip reflects the impact of increased provisioning costs observed in the second quarter.
The company’s Return on Average Assets (RoAA) stood at 1.9% (annualized), down from 2.4% in the year-ago quarter, suggesting some moderation in yield on deployed assets. Earnings per share (EPS) for Q2 FY26 came in at ₹7.0, down from ₹7.4 in Q2 FY25.
Meanwhile, the book value per share rose to ₹233, up from ₹187 in Q2 FY25, underscoring the company’s ability to grow intrinsic value even amidst near-term earnings softness.
HDB Financial Services continues to expand its physical presence, with its distribution network reaching 1,749 branches across 1,157 cities and towns in India. This wide footprint enables strong origination capabilities and rural reach, which are critical differentiators in India’s evolving credit landscape.
How did the stock market react post-Q2 earnings and what are institutional investors focusing on?
Shares of HDB Financial Services closed at ₹742.40 on October 15, 2025, up ₹2.30 or 0.31% for the day. The stock has been trading in a range since listing, with a 52-week high of ₹891.90 recorded on July 3, 2025, and a low of ₹728.30 on October 9, 2025.
While the listing was met with significant investor interest due to the HDFC Bank pedigree, recent trends suggest that institutional buyers are in wait-and-watch mode. The elevated Stage 3 ratios, declining provision coverage, and rising credit costs are likely influencing sentiment in the near term.
The company currently commands a market capitalization of ₹61,587 crore, with a free float market cap of ₹10,024 crore, indicating significant institutional holdings and public float. Trading activity remains relatively robust, with 9.21 lakh shares traded on October 15 and a delivery percentage of 69.64%, hinting at a strong long-only investor base.
Analysts tracking the stock are likely to reassess their expectations based on Q2 trends, especially regarding net margin stability and the quality of incremental loan growth. While the management has not offered formal guidance, market participants will likely expect a recalibration of provisioning strategies in upcoming quarters.
What lies ahead for HDB Financial Services in terms of growth strategy, regulatory positioning, and sectoral context?
Looking ahead, HDB Financial Services will need to demonstrate that it can manage asset quality risks without compromising on growth or profitability. With net interest margin rising to 7.9%, the company continues to enjoy a healthy spread, which provides cushion against higher provisioning.
The NBFC is classified as an upper-layer entity by the Reserve Bank of India, implying greater regulatory compliance and governance expectations. As such, any further increase in unsecured retail exposure may come under scrutiny from both the regulator and rating agencies.
Sectorally, the broader NBFC space in India is witnessing mixed trends. While credit growth remains strong in retail and SME segments, macro risks like inflation, interest rate volatility, and rising delinquencies could pressure underwriting models. Peer comparison with listed players like Bajaj Finance, L&T Finance, and Cholamandalam will offer further context in the coming quarters.
Given its scale, parentage, and growing footprint, HDB Financial Services remains well positioned to benefit from India’s credit cycle tailwinds. However, investor confidence will likely hinge on how the company reins in slippages and fortifies balance sheet buffers as it moves through FY26.
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