HDFC Bank (HDB) Q2 FY2027: loan growth hits 16.3%, margin slips

HDFC Bank (HDB) Q2 FY2027 results show loan growth accelerating to 16.3% while the net interest margin fell to 3.16%. The bank reported results for the second quarter of fiscal 2027 (July to September 2026) and held an earnings call on October 17, 2026 [1][2]. Lending picked up sharply, but profit conversion weakened as the margin narrowed.

Three questions mattered going into the quarter. Could lending reaccelerate on the back of deposit growth? Would deposit repricing lower funding cost? Was credit cost on unsecured retail loans rising again? The quarter confirmed the loan acceleration, but funding cost did not fall. Loss data for unsecured retail loans are not disclosed quarterly, so the direction of that risk remains unclear. Overall, the bank's growth is now limited by liquidity and deposit quality rather than the loan-to-deposit ratio. Whether profit improves depends on how floating-rate loans reprice after the October rate hike.

HDFC Bank is India's largest private-sector bank, and in July 2023 it absorbed its former parent, HDFC Limited. The bank gathers deposits and lends to individuals and businesses, earning mainly the spread between loan and deposit rates. In fiscal 2026, Retail Banking produced about 53% of group net revenue [3].

Loan growth reaccelerated, and deposits funded it within the quarter

Loan growth was clearly faster than in the previous fiscal year. At September 30, 2026, standalone gross advances were about Rs. 32.2 trillion, up 16.3% year over year, and deposits were about Rs. 33.3 trillion, up 18.8% [4]. In fiscal 2026, consolidated loans grew about 10.3% [5] and deposits grew 14.4% [6].

Both growth rates were lifted by the Reserve Bank of India's swap window for foreign currency non-resident (FCNR(B)) deposits. Through the window, the bank raised about Rs. 1.10 trillion of foreign currency deposits, and its overseas branches lent about Rs. 547.7 billion against them [4]. Excluding both amounts, loan growth would be about 14.3% and deposit growth about 14.8%, based on the company's figures.

Growth came from every business line. Quarterly retail disbursements rose from Rs. 760 billion to more than Rs. 900 billion, and retail loan growth excluding agriculture rose to 11.2% from 7.4% in March [2]. Small and mid-market enterprise loans grew 23.5%, and corporate and other wholesale loans grew 16.4% [7]. The CFO said deposits rose Rs. 1.57 trillion and loans rose Rs. 1.58 trillion in the quarter, so the two were broadly matched [2]. Based on the company's figures, period-end loans equaled 96.8% of deposits, down from 98.8% a year earlier [4]. The loan-to-deposit measure used in the annual report is not disclosed quarterly.

The constraint has shifted to liquidity. The liquidity coverage ratio was about 113%, and the CFO said the bank needs to hold about 110% to keep growing. Management also cited large one-off deposit outflows, which had to be replaced with non-retail deposits [2]. Whether lending can keep growing this fast depends on core deposits keeping pace.

Funding cost did not fall, and the net interest margin slipped to 3.16%

The deposit repricing benefit expected earlier did not appear this quarter. The standalone net interest margin on total assets was 3.16%, down from 3.26% in the prior quarter [1]. The consolidated margin for fiscal 2026 was 3.6% [8], but the two are measured differently and should not be compared directly. Cost of funds was flat at about 4.4%. About Rs. 1.3 trillion of the new deposits were time deposits, including FCNR money, and that offset the benefit of repricing older liabilities [2].

The deposit mix kept shifting toward more expensive time deposits. Based on the company's figures, current and savings accounts (CASA) fell to about 30.7% of average deposits, from about 32.4% in the same quarter a year earlier [4]. The period-end CASA ratio was 31.6% [7], compared with 34.1% at the end of March [8].

The narrower margin meant revenue grew more slowly than loans. Net interest income rose 9.7% year over year to Rs. 346.19 billion. Treasury trading gains fell to Rs. 7.8 billion from Rs. 23.9 billion, and net profit was about Rs. 195.1 billion, up 4.7%. Excluding trading gains, profit grew about 12.6% [1].

The rate cycle has turned. The Reserve Bank of India raised its policy rate by 25 basis points in October, and about 70% of the bank's loans are floating-rate. The next quarter will also carry a full quarter of FCNR deposit cost. Management said the second quarter was the bottom for the margin and expects it to be flat to higher from here [2]. That is company guidance and has not yet been realized.

Conclusion

HDFC Bank's Q2 FY2027 results strengthen the view of its growth engine and weaken the view of profit conversion. Loans are growing quickly again, but new funding leans toward time and non-retail deposits, net interest income is growing more slowly than loans, and the liquidity coverage ratio is close to its floor. The FCNR window closed on August 31, 2026, so its boost to deposit growth will not repeat [4]. Bank-wide credit cost was 44 basis points and the gross non-performing loan ratio was 1.11% [2]. Loss rates on unsecured retail loans still await the annual report. The view would strengthen if deposits excluding FCNR money keep pace with loans, the margin recovers and the CASA share stops falling. It would weaken if liquidity forces lending to slow or the margin keeps falling.

Sources

[1] Moneycontrol 2026-10-17 · HDFC Bank Q2 FY27 results, 2026-10-17, Moneycontrol results report, https://www.tradingview.com/news/moneycontrol:4f340351b094b:0-hdfc-bank-q2-results-net-profit-rises-4-7-to-rs-19-510-crore-broadly-meets-estimates-asset-quality-improves/

[2] HDB Q2 FY27 earnings call 2026-10-17 · transcript, 2026-10-17, earnings call transcript (Motley Fool), https://www.fool.com/earnings/call-transcripts/2026/10/18/hdfc-bank-hdb-q2-2027-earnings-call-transcript/

[3] HDB 20-F filed 2026-07-29 | Summarized segment information, 2026-07-29, Form 20-F annual report, https://www.sec.gov/Archives/edgar/data/1144967/000119312526322004/d88195d20f.htm

[4] HDFC Bank business update 2026-10-04 · September 2026 quarter, 2026-10-04, HDFC Bank quarterly business update filed with NSE/BSE, https://nsearchives.nseindia.com/corporate/HDFCBANK_04102026220033_initial_Final_disclosure_Sep2026.pdf

[5] HDB 20-F filed 2026-07-29 | Loan Portfolio and Credit Substitutes, 2026-07-29, Form 20-F annual report, https://www.sec.gov/Archives/edgar/data/1144967/000119312526322004/d88195d20f.htm

[6] HDB 20-F filed 2026-07-29 | Liabilities and Shareholders Equity, 2026-07-29, Form 20-F annual report, https://www.sec.gov/Archives/edgar/data/1144967/000119312526322004/d88195d20f.htm

[7] Business Standard 2026-10-17 · HDFC Bank Q2 FY27 results, 2026-10-17, Business Standard results report, https://www.business-standard.com/companies/quarterly-results/hdfc-bank-q2fy27-result-net-profit-rises-4-7-to-19-510-cr-nii-up-9-7-126101700465_1.html

[8] HDB 20-F filed 2026-07-29 | Overview growth and asset base, 2026-07-29, Form 20-F annual report, https://www.sec.gov/Archives/edgar/data/1144967/000119312526322004/d88195d20f.htm