HDFC Bank Q1 Net Profit Rises 5% to Rs 19,060 Crore; Asset Quality Worsens

HDFC Bank reported a 5% year-on-year rise in its standalone net profit for the first quarter of fiscal 2027, coming in at Rs 19,060 crore. The result matched market expectations, according to a Reuters poll.

The bank's net interest income (NII) — the difference between interest earned and paid — rose 7% to Rs 32,400 crore. However, analysts noted that margins remained under pressure amid rising deposit costs and a shift in loan mix.

The lender's performance was buoyed by a decline in provisions for bad loans. Total provisions dropped significantly compared to the same quarter last year, providing a cushion to the bottom line.

Asset quality takes a hit

While profitability improved, the bank's asset quality worsened during the quarter. Gross non-performing assets (NPAs) as a percentage of total advances rose sequentially, indicating stress in certain loan segments.

Net NPAs also inched higher. The bank did not immediately provide a detailed sector-wise breakdown of slippages, but analysts tracking the stock flagged weakness in the unsecured retail and small business loan portfolios.

The rise in NPAs came despite aggressive recovery efforts. HDFC Bank's management has previously stated that it expects asset quality pressures to ease in the second half of the fiscal year.

Deposit growth outpaces loan growth

On the liability side, HDFC Bank reported strong deposit growth during the quarter. Total deposits rose at a healthy clip, outpacing loan growth. This helped the bank maintain a comfortable liquidity position.

However, the cost of deposits rose as the bank offered higher rates on term deposits to attract funds. This, coupled with a slower repricing of loans, squeezed net interest margins (NIMs).

The bank's current account and savings account (CASA) ratio — a key measure of low-cost deposits — saw a slight sequential decline. Analysts at Investing.com noted that margin pressure would remain a key theme for HDFC Bank in the near term.

Other income and expenses

Non-interest income, which includes fees, commissions, and trading gains, grew in the mid-single digits. Core fee income remained steady, supported by strong retail banking activity and credit card volumes.

Operating expenses rose in line with business growth. The bank continued to invest in its branch network and technology infrastructure. The cost-to-income ratio remained elevated compared to pre-merger levels.

What to watch

Investors will closely monitor the bank's commentary on asset quality trends, particularly in the unsecured lending segment. The trajectory of NIMs will also be a key focus, as will the pace of deposit repricing.

HDFC Bank's management is expected to provide guidance on loan growth and margin recovery in its post-earnings conference call. The bank's stock will remain in focus as markets assess the impact of rising NPAs on future earnings.