HDFC Bank delivered its Q3 FY26 financial results on Saturday and it was broadly on expected lines. The bank posted a good 12 per cent rise in earnings year-on-year, while its class-leading asset quality threw no negative surprises. However, the stock ended flat on Monday . Here’s an analysis.

Ever since the bank’s merger with its erstwhile housing finance NBFC – HDFC Ltd, if there was one concern that nagged investors, it was the CD ratio or the credit-deposit ratio. Q2 FY24 was the first quarter after the merger. The CD ratio then was 108 per cent. With the bank accelerating deposit growth and exercising restraint on credit growth, the CD ratio has been on a consistent downtrend from 105 per cent as of Q4 FY24 to 97 per cent as of Q4 FY25. Management had guided that it will bring down the CD ratio even further, by growing advances only in line with the system in FY26 and slightly above the system in FY27.

Though the ratio fell to 96 per cent in Q1 FY26, it backtracked in Q2 to 99 per cent. Markets might have brushed it off as an exception then. However, with a 11.9-per cent and a 14.4-per cent growth in advances and deposits in Q3, the CD ratio persists at 99 per cent. While there is no regulatory requirement for banks to maintain a certain level of this ratio, a higher level could constrain a bank from growing its loan book or grow at the cost of profitability via market borrowings, which cost more than deposits.

Management in the call with analysts, clarified that given the regulator’s dovish stance on monetary policy and the systemic nature of the bank, it had to participate in transmitting the same – do its part in making credit available to seekers. It further expressed its commitment to the guidance above, adding that it expects a CD ratio of about 95 per cent by Q4 FY26 and somewhere between 85 and 90 per cent by end-FY27. The bank’s internal assessment is that system level credit growth could be 12-13 per cent for FY27 and pegs its own credit growth at 2 percentage points above that (14-15 per cent).

The CD ratio math

Considering the banking system will exit FY26 with a 13-per cent credit growth (12.7 per cent as of Q3 FY26) and HDFC, too, will grow credit in line with the system, to achieve a 95-per cent CD ratio, deposit growth for FY26 should be at least 16 per cent. Further, assuming the bank will report a credit growth of 14 per cent in FY27 (system 12 per cent + 2 per cent) and going with a modest CD ratio expectation of 90 per cent, implies a deposit growth rate of at least 20 per cent for FY27, which seems an uphill task, given its size.

Management though, believes the bank has the chops to deliver the same, pointing to its investment in expanding branches, in the last five years. It has added about 4250 branches, only in the last five-odd years, accounting for about 44 per cent of the current branch strength. These branches now contribute only to about 20 per cent of incremental deposits. As their vintage grows, these branches deliver higher productivity. For instance, management claims that 5-10-year-old branches bring thrice the deposits compared to what they brought 5-years ago. Currently, about 1,300 branches are close to becoming 5-year-olds.

While this logic cannot be denied, at this point, the 20-per cent implied deposit growth in FY27 and a subsequent 90-per cent CD ratio does seem difficult. Realistically, either growth should take the backseat or the CD ratio glide path be extended by a year or two.

Fundamentally sound still

Nevertheless, fundamentally, the bank is sorted, consistently delivering an RoA of between 1.9 and 2 per cent (post-merger), even when growing in line with the system. A clean balance sheet further makes it attractive. The stock now trades at a price-to-book value (P/B) multiple of 2.5x on a consolidated basis. Considering there could be some corrections stemming from the bank not meeting its own guidance, long-term investors can accumulate the stock on dips. We had given an ‘accumulate’ call in July 2024, when it was trading at a P/B ratio of 2.6x.

Published on January 19, 2026