Affect of Low CASA and Excessive Borrowings Submit Merger, ETCFO
Nation’s largest non-public lender HDFC Financial institution’s internet curiosity margin (NIM) remained subdued at 3.35 per cent within the first quarter of FY26, because the financial institution continues to handle its manner by means of the funding value overhang and liabilities combine challenges following its merger with HDFC Ltd.
CFO Srinivasan Vaidyanathan stated the margin stress led to elevated borrowing ranges and a dip in low-cost present and financial savings account (CASA) deposits.
“The one merchandise that inhibited us from being at 4 per cent to three.4 per cent is the price of funds. Borrowings, which had gone up from 8 – 9 per cent pre-merger to about 21 per cent, are actually all the way down to 13 per cent, however they’re nonetheless increased than the place we began,” Vaidyanathan stated.
Submit-merger, the financial institution needed to fund the acquired e-book and keep liquidity, leading to a pointy uptick in borrowings. Whereas this has regularly tapered, the CFO stated that margins are nonetheless bearing the brunt.
Concurrently, the share of CASA deposits, sometimes a low-cost and sticky funding supply, has slipped. CASA ratio declined to 34 per cent as of June 2025 from 35 per cent in March 2025 and 36 per cent a 12 months in the past.
“As coverage charges begin to come down, we count on CASA to begin climbing. Traditionally, that’s what has occurred. There’s no purpose why that may not be the case,” he stated.
Deposit development outpaces credit score enlargement
Whereas deposit development remained sturdy, common deposits rose 16.4 per cent year-on-year to Rs 26.6 lakh crore, the financial institution’s common advances underneath administration grew at a slower tempo of 8.3 per cent to Rs 27.4 lakh crore. Retail loans have been up 8.1 per cent year-on-year, with business banking and enterprise banking segments exhibiting increased momentum.
“There’s nobody product phase that we’re pushing. We wish all three companies, retail, SME, wholesale to develop. We’re progressing in direction of rising on the market price in FY26 and delivering premium development in FY27,” Vaidyanathan stated.
The financial institution additionally stays cautious on company lending. Common company and different wholesale advances declined sequentially to Rs 7.08 lakh crore in Q1. “There’s liquidity obtainable and spreads are decrease. We’re being selective within the company phase,” the CFO acknowledged.
Vaidyanathan additional defined that there’s all the time this excessive finish phase the place persons are liquid, and so they can get pricing at high-quality charges. “So, we’re saying okay, we’ll do what we need to do with them on a relationship foundation, however we aren’t rising the e-book simply because pricing is ok there,” he stated.
Department enlargement to be calibrated
Whereas the financial institution added 700 branches final fiscal, it plans to gradual that tempo this 12 months. As of June 30, 2025, HDFC Financial institution operated 8,153 branches.
“We aren’t going to open 700 branches like final 12 months. We’re going to be calibrated. We’ll go into alternative areas, we’ll go into the ecosystem, and we’ll be prudent,” Vaidyanathan stated.
How did Q1 FY26 fare out for HDFC Financial institution?
