HDFC Bank reports Q3 deposit growth outpacing loans amid liquidity strategy post-merger

India’s largest private sector bank, HDFC Bank, has announced that its deposit growth outpaced loan growth in the quarter ending December 31, 2024. This development comes at a pivotal time as the bank continues to adapt to the operational and financial shifts following its merger with Housing Development Finance Corporation (HDFC) in July 2023.

Deposits during the period rose by 4.2% to ₹24.53 trillion ($286.03 billion), demonstrating the bank’s strategic focus on strengthening its liquidity. Although the pace of growth moderated from the 5.1% recorded in the previous quarter, it still represents a critical step towards addressing the challenges posed by a historically high loan-to-deposit ratio.

Gross advances, or loans disbursed, showed a more modest growth of 0.9%, reaching ₹25.43 trillion. This marks a slowdown from the 1.3% sequential growth seen in the July-September quarter. Analysts attribute this tempered loan growth to broader trends in the Indian banking sector, where regulatory guidance from the Reserve Bank of India (RBI) has led banks to exercise caution in expanding unsecured and personal loans.

Post-Merger Liquidity Challenges And Solutions

The merger with HDFC significantly altered HDFC Bank’s financial dynamics. While the integration added a vast pool of loans to the bank’s portfolio, the deposit base expanded at a slower rate, pushing its loan-to-deposit ratio to approximately 110%—a figure that underscores liquidity pressures.

To address this, HDFC Bank adopted several measures, including the securitisation of ₹216 billion worth of loans during the December quarter. This strategic move helped the bank release liquidity and brought its loan-to-deposit ratio to a more manageable level of 99.2% by the end of the period. Experts suggest that securitisation not only improves liquidity metrics but also diversifies funding sources, reducing reliance on customer deposits.

The bank’s current and savings account (CASA) deposits, a crucial low-cost funding source, saw a growth of 1.1% in the quarter. This aligns with the bank’s broader strategy to attract stable and cost-effective deposit inflows.

Broader Industry Trends Impact Loan Growth

HDFC Bank’s cautious approach to loan expansion is reflective of an industry-wide trend in India’s banking sector. Over the past five months, loan growth across Indian banks has decelerated, driven by a regulatory clampdown on what the RBI described as “exuberant” lending in unsecured segments.

This trend is evident in HDFC Bank’s loan growth metrics, which have moderated significantly from the aggressive pace seen earlier in 2024. While personal loans remain a key driver of growth for the bank, the focus has shifted to balancing risk and liquidity in a challenging regulatory environment.

Strategic Stake Acquisitions To Diversify Assets

In a significant move, HDFC Bank revealed that it had received approval from the Reserve Bank of India to acquire up to a 9.5% stake in three financial institutions: Kotak Mahindra Bank, AU Small Finance Bank, and Capital Small Finance Bank. This decision is part of the bank’s broader strategy to diversify its asset base and strengthen its presence in India’s highly competitive financial ecosystem.

These acquisitions are seen as a long-term bet to enhance the bank’s market position, leveraging synergies with these institutions to offer a wider range of financial services and products.

Expert Insights On Growth And Stability

Industry experts believe that HDFC Bank’s proactive measures, such as securitisation and strategic acquisitions, demonstrate a commitment to balancing growth with financial stability. The bank’s efforts to bring its loan-to-deposit ratio below 100% signal an intent to align its operational metrics with global best practices.

Furthermore, the focus on deposit mobilisation underscores a shift towards ensuring long-term liquidity. As India’s banking sector continues to evolve amidst regulatory changes and economic fluctuations, HDFC Bank’s strategic approach positions it as a leader in navigating these challenges.

HDFC Bank’s third-quarter performance reflects its strategic focus on adapting to post-merger realities while maintaining market leadership in India’s banking sector. By prioritising deposit growth, managing its loan-to-deposit ratio, and diversifying its portfolio through stake acquisitions, the bank is setting a robust foundation for sustainable growth.

As the Indian banking landscape transforms, HDFC Bank’s balanced approach offers insights into how major financial institutions can align growth ambitions with regulatory expectations and liquidity management.