HDFC Bank Shares Drop as Deposit Growth and Funding Targets Raise Concerns

HDFC Bank’s shares slipped 0.48% to ₹926.65 as markets reacted to the lender’s December-quarter results, even after the bank reported a rise in net profit and key operating metrics. The stock had gained 13.7% over the past year, outperforming the benchmark Nifty 50, which returned less than 11% over the same period.

For the third quarter of FY26, which ended on December 31, 2025, HDFC Bank reported a year-on-year increase in standalone net profit of 11.5% to ₹18,650 crore. The net interest income went up 6.4% to ₹326.2 billion, and the quality of the assets stayed the same, with gross non-performing assets staying the same at 1.24%

Funding and Deposit Dynamics Highlighted in Commentary

The credit-to-deposit (CD) ratio was 98.7% in the December quarter, which is higher than it was before the merger. Management indicated plans to moderate the CD ratio to a range of 92–96% in the near term and 85–90% by FY27 through enhanced deposit mobilisation efforts.

According to the Reserve Bank of India, Indian banks' credit-to-deposit (CD) ratio hit a record high of 81.75% as of December 31, 2025. The increase indicates that as more people seek loans, lenders are under pressure to collect more deposits. A higher CD ratio means that banks are lending out a bigger share of their deposits. This means that there is less room for more credit to grow unless deposit mobilisation gets stronger.

Loan Growth, Margins and Provisions in Q3

HDFC Bank's loan book grew 12% year over year in the quarter, with strong demand from both large corporations and small businesses. The bank also said that its net interest margin (NIM) improved from 3.27% to 3.35% from one period to the next. This was partly because the Reserve Bank of India has cut its policy rate by a total of 125 basis points since February 2025.

Provisions for bad loans fell by about 10% from last year to ₹28 billion. This means that credit costs are lower than they were last year. Gross advances went up by almost 11.9%, which shows that the balance sheet is still growing.

Brokerages Maintain Bullish Stance, Point to Deposit Growth as Key Monitor

Brokerage houses retained positive ratings on HDFC Bank after its Q3 FY26 results, while highlighting deposit mobilisation as the main near-term focus. One firm kept an Outperform rating with a ₹1,200 target, noting 11% YoY EPS growth supported by stable net interest income, fee income strength, provisioning releases, and cost discipline. It also stated that return on assets remained steady.

Another brokerage reaffirmed a Buy call and raised its target to ₹1,240, citing profit above estimates and broadly in-line core earnings after adjusting for provision releases and one-offs. It flagged deposit growth at around 12% YoY as a concern and said the bank’s reduction of costlier deposits would need to be followed by faster deposit accretion to bring down the loan-to-deposit ratio.

A third brokerage maintained an Add rating with a ₹1,050 target, reporting 12% YoY earnings growth, an 8% rise in operating profit, and a 10% drop in provisions. It added that loan growth stood at 12% and net interest margins improved 10 basis points to 3.3%, while emphasising the need for stronger deposit mobilisation for FY27.

Conclusion

HDFC Bank’s Q3 numbers were strong, with profit growth, margin improvement and stable asset quality. But the stock reaction shows investors are still watching the funding side closely. Deposit growth remains slower than loan growth, and the bank’s CD ratio is higher than its pre-merger level. That makes the bank’s funding strategy the main near-term focus.

For traders, the next move will depend on how quickly deposit mobilisation improves and whether the bank can bring down its CD ratio without hurting margins. For longer-term investors, the earnings beat supports the bank’s growth story, but sustained deposit momentum will be needed to maintain confidence and support the stock’s valuation.

Sources

Moneycontrol
Moneycontrol
TimesofIndia
Economictimes
Reuters