---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 163751
conversation_id: d50a46be-162b-4eb6-ab9a-e64e9afbb43d
citations: 0
created: 2026-05-31 19:01:16Z
---

# Is CLSA incrementally more positive/negative on HDFC Bank. If so, why?

**Yes — CLSA turned incrementally MORE POSITIVE on HDFC Bank during 4QFY25 earnings season (results released in late April–May 2025).** The most explicit signal: **CLSA upgraded HDFC Bank from HOLD (HLD) to OUTPERFORM (O-PF)** — a rating action documented in their 28-May-2025 "India Financials – 4QFY25 Review: Divergent trends" note [2][1]. Within their India banks coverage, this is one of only a handful of upgrades — alongside the simultaneous downgrades of Kotak Mahindra Bank and IndusInd Bank to HLD [2][1].

---

## The Upgrade and Its Rationale

CLSA's verbatim justification: *"we upgraded HDFCB from HLD to O-PF given the bulk of LDR reductions have occurred and its stable NIM performance over the past 4-5 quarters. We expect HDFCB to deliver 13%/15% loan growth over the next two years."* [1]

The thesis change rests on three interlinked drivers:

### 1. LDR drag is now behind the bank → growth re-acceleration
HDFC Bank had deliberately under-grown its loan book for the prior 4–5 quarters to bring down its post-merger Loan-to-Deposit Ratio. CLSA now sees that workout as essentially complete:
- **Sequential loan growth of 4% QoQ in 4QFY25** — *"the strongest in the past 4-5 quarters"* [3]
- Management has guided to **3–4% sequential growth going forward**, with a moderating pace of further LDR reduction [3]
- CLSA explicitly notes HDFCB *"decided to resume loan growth"* in 4QFY25 [6]
- Modeled loan growth trajectory steps up sharply:

| Bank | FY25 actual | FY26CL | FY27CL |
|---|---|---|---|
| **HDFCB** | **5%** | **13%** | **15%** |
| ICICIB | 13% | 15% | 17% |
| AXSB | 8% | 12% | 15% |
| SBI | 12% | 11% | 11% |

[11] — the FY25→FY26 step-up of +8ppts is the steepest in CLSA's bank coverage.

### 2. NIM is one of the most defensible in the sector through the rate-cut cycle
CLSA models a 75bp cumulative repo rate cut and expects NIM compression for most banks in FY26 followed by recovery in FY27. **HDFC Bank is one of only two banks (with Federal Bank) where CLSA forecasts FY27 NIM ABOVE FY25** — because of an idiosyncratic positive driver: the run-off / repayment of legacy HDFC Ltd high-cost bonds [4]:

| NIM (%) | FY25 | FY26 | FY27 |
|---|---|---|---|
| **HDFCB** | **3.3** | **3.2** | **3.4** ↑ |
| ICICIB | 4.1 | 3.8 | 3.9 |
| AXSB | 3.5 | 3.3 | 3.4 |
| KMB | 4.4 | 4.2 | 4.2 |
| IIB | 3.6 | 3.2 | 3.2 |
| SBI | 2.6 | 2.5 | 2.6 |

[5] — HDFC Bank is the only large private bank with a FY27 NIM forecast that EXCEEDS the FY25 base.

### 3. Reported 4QFY25 numbers validated the thesis ahead of the upgrade
- Healthy **NII growth of 4–5% QoQ**, alongside ICICIB the best in the sector [3]
- **Benign asset quality** — HDFCB grouped with ICICIB and SBI as banks reporting *"benign net slippages"* in contrast to elevated slippages at Axis and the blow-up at IndusInd [2]
- Reported NIM was *"sequentially higher"* — a positive surprise to CLSA who had expected 3–5bp NIM decline [3]
- **Top-3 private bank SA rate cut (25bp in Apr-25)** is expected to add ~5–6bp to HDFCB's NIM going forward [3]

---

## What Tempers the Upgrade (the "negative space")

CLSA still trimmed HDFC Bank's earnings estimates — just less than peers:

| Bank | FY26 PAT chg | FY27 PAT chg |
|---|---|---|
| **HDFCB** | **-2.6%** | **-2.0%** |
| ICICIB | 0.0% | +1.9% |
| KMB | -4.8% | -2.6% |
| IIB | **-41.9%** | **-27.8%** |
| SBI | -4.3% | -3.6% |

So the upgrade is **driven by valuation/positioning + visibility on the LDR/NIM trajectory, not by an upward EPS revision.** CLSA also flagged that HDFCB's **CASA growth was weak at +4% YoY in FY25** (vs ICICIB +13%), and **CASA ratio declined ~3ppts YoY** [9] — meaning the deposit-mix story is not yet a positive. The positive thesis rests squarely on loan growth re-acceleration, NIM idiosyncrasies, and best-in-class asset quality and opex (HDFCB's expense ratio is *"20–30bps lower than the second-best bank, ICICIB"*) [7].

---

## Corroborating Read-Throughs

Subsequent CLSA sector data points have reinforced the constructive view, not contradicted it:
- **May 2025 credit cards** (24-Jun-2025 note): HDFCB outperformed with **25% YoY spends growth**, while ICICIB's spends growth collapsed to 8% YoY (its weakest in 20 months) [12]. **HDFCB added 275k new cards in May — 36% of total industry net additions** [13]
- HDFCB's spends market share has moved up to ~27–28%, with sustained card-acquisition momentum even as ICICIB lost 32k cards in the month [12][13]

---

## Bottom Line

CLSA's incremental stance on HDFC Bank shifted **decisively positive in May 2025**, marked by an explicit upgrade from HLD → O-PF. The driver is a **re-rating thesis**: with LDR drag fading, loan growth set to nearly triple (5% FY25 → 13% FY26 → 15% FY27), NIM uniquely positioned to *expand* in FY27 thanks to bond run-off, and best-in-class asset quality / opex efficiency, HDFCB is now CLSA's preferred large-cap private bank alongside ICICIB. The view is constructive on the operating trajectory (growth + NIM + asset quality), even though near-term earnings forecasts were trimmed modestly and the CASA deposit-mix story remains a watch-item.

---
**Sources**
[1] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (upgrade rationale paragraph)
[2] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (overall section: divergent trends, upgrade/downgrade calls)
[3] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (loan growth, NII, sequential pickup)
[4] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (NIM FY26/FY27 modeling — bond repayment driver)
[5] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (Figure: NIM table)
[6] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (HDFCB picks up sequentially)
[7] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (Opex – HDFCB leadership)
[8] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (estimate changes — PAT FY26/FY27)
[9] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (CASA growth table)
[10] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (SA rate cut – NIM benefit)
[11] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (loan growth forecast table FY25/26/27)
[12] India Financials (May 2025: Stable month) — CLSA (24 Jun 2025) — 607962715LinqAlpha.PDF (credit card spends commentary)
[13] India Financials (May 2025: Stable month) — CLSA (24 Jun 2025) — 607962715LinqAlpha.PDF (Figure 4 — card additions table)

