---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 210591
conversation_id: 078a93c1-eab1-4454-8127-df251f365383
citations: 17
created: 2026-05-31 20:58:48Z
---

# What are the key risks to HDFC Bank’s growth trajectory?

# Key Risks to HDFC Bank's Growth Trajectory

HDFC Bank ("HDFCB"; ADR: HDB; NSE: HDFCBANK) is rated **O-PF (Outperform)** by CLSA after a 4QFY25 upgrade [1]. CLSA and HDFCB's own filings frame the following as the principal risks to the growth trajectory.

## 1. Deposit Mobilization & The Post-Merger CD-Ratio Overhang

The merger with HDFC Limited (July 2023) saddled HDFCB with a Loan/Deposit (CD) ratio of ~110%, which the bank has been compressing on a multi-year glide path. Management has explicitly **slowed the loan engine** to reduce that ratio.

- HDFCB has brought the CD ratio down "from the highs at the time of merger, which was at about 110%, to around 96% as of March 2025" [10] and ~95% as of 1QFY26 [11].
- To enable that, HDFCB **deliberately slowed AUM growth to ~7% in FY25**, with a roadmap of "system growth rate in FY26 and higher than the system in FY27" [11] — meaning growth is structurally below peers (ICICIB and Kotak grew loans 13–14% YoY in 4QFY25) until at least FY27 [1].
- The deliberate slowdown is captured in CLSA's review: "HDFCB has articulated that it would now grow 3-4% QoQ over the ensuing quarters and the pace of LDR reduction will moderate compared to that in FY25" [1].
- Analysts have repeatedly questioned whether "deposit growth is finding difficult to meet your own loan growth requirements" amid elevated funding costs [16], and management has acknowledged that deposits had been the binding constraint, requiring "a massive effort to reduce the credit deposit ratio… trying to slow down the engine on the loan side and also try and step up the deposits" [17].

**Risk:** If deposit mobilization disappoints, the FY26→FY27 reacceleration to "above-system" growth will slip, undermining the central thesis of the O-PF rating.

## 2. NIM Compression from Repo Rate Cuts & CASA Stagnation

- The RBI has frontloaded rate cuts in CY2025. CLSA highlights this directly hit private-bank NIMs and prompted defensive action: **"the top-3 private sector banks (HDFCB, ICICIB, AXSB) cut SA deposit rates across all buckets by 25bp. This was the first savings account (SA) rate cut in five years. We believe this is done to cushion the NIM impact from repo rate cuts"** [2]. CLSA estimates the SA cut adds back only ~5–6bp of NIM — a partial offset, not a full hedge.
- HDFCB itself flags **interest rate risk** as a core risk in its FY25 20-F: an "increase in interest expense relative to interest revenue if we are not able to increase the rates charged on our loans, which would lead to a reduction in our net interest revenue and net interest margin" [13].
- **CASA pressure is structural, not cyclical**. CLSA's analysis ("The CASA-Repo Affair", 19 May 2025) found "no particular correlation between repo and CASA"; CASA recovery requires TD rates to fall **sub-6%**, which a 50bp further repo cut is unlikely to deliver [7]. HDFCB's own CASA growth deteriorated from 22% in FY22 → 11% (FY23) → 9% (FY24) → just **4% in FY25**, the slowest among major private banks [4].
- During Q3 FY24, analysts pointed out HDFCB was at the high end of its 3.4–3.7% NIM range with "no excess liquidity… funding costs may remain elevated" — i.e., upside to NIM is structurally constrained [16].

**Risk:** A combination of asset-side repricing (loans linked to repo) and slow CASA recovery keeps NIM range-bound at the lower end of management's 3.4–3.7% band.

## 3. System-Wide Loan Growth Slowdown

The macro backdrop has weakened: India banking-system credit growth has materially moderated.

- CLSA: **"System loan growth that hovered around 15%-16% in FY23/24 moderated to 11% in FY25. This is driven by a slowdown in consumer credit (both secured and unsecured) as well as in services credit. Corporate credit growth remains modest at 8-9%"** [3].
- HDFCB's own FY25 annual report corroborates: "The moderation in GDP growth in FY25 was mirrored in the slowed banking system credit growth, to 11.0 per cent from 20.2 per cent" [14].
- This affects HDFCB's growth recovery: CLSA models HDFCB deposit growth of **14% FY25 → 16% FY26 → 17% FY27** [5] and 4QFY25 reported deposit growth was already "14% YoY, modestly lower than the level in prior quarters" [1].

**Risk:** If consumer credit (especially unsecured) remains weak, HDFCB's pivot from "below-system" to "above-system" loan growth in FY27 may not materialize.

## 4. Asset-Quality Risk in Unsecured Retail (Sector-Wide Read-Through)

While HDFCB itself remains asset-quality "best in class" — with "benign net slippages" in 4QFY25 and "Asset quality remains pristine" per management [10] — the wider unsecured lending cycle is a key risk monitor:

- HDFCB's 20-F discloses **"Our gross non-performing loans as a percentage of our total loan portfolio increased to 1.3 percent in fiscal year 2025 from 1.2 percent in fiscal year 2024"** [13].
- The 20-F notes system-wide moderation in unsecured credit: **"Growth in unsecured credit consequently moderated, remaining below 20 percent of GDP from June 2024 to December 2024… and further moderating to below 10 percent since January 2025"** [13].
- CLSA's "investment risks" framework for the broader large-bank coverage list calls out **"slowdown in loan growth and sharp repo rate cuts"** as the key risks across the sector [6].

**Risk:** A sharper-than-expected NPA cycle in unsecured personal loans / credit cards could affect HDFCB's credit costs, even from a low base, given the bank's increasing unsecured retail mix.

## 5. Earnings/EPS Risk — CLSA Has Been Cutting Estimates

- CLSA's FY26/FY27 PAT estimate revisions for HDFCB: **FY26 -2.6%, FY27 -2.0%** post 4QFY25 (the "Above" verdict refers to PAT vs CLSA's estimate, but the absolute number was cut) [8]. Even ICICIB and other O-PF banks saw EPS trims — part of a broader "EPS cuts continue" theme in CLSA's 9 June 2025 India Strategy note [8].

## 6. Macro / Geopolitical / Regulatory Tail Risks

- **Trade tariff uncertainty**: HDFCB management explicitly flagged on its FY25 call that "the goods exports may be impacted until the global trade and tariff situation becomes far more clearer. We acknowledge that the global macroeconomic outlook has become more uncertain due to the recent trade tariff-related measures and the volatility surrounding them" [10].
- **Central Bank Digital Currency (Digital Rupee)**: HDFCB's 20-F highlights that if CBDCs scale, "commercial banks, including us, may experience deposit outflows and face challenges in raising new low-cost deposits as cash is diverted into personal digital wallets" [15] — a long-tail risk to the CASA franchise.
- **Indian economic slowdown / GNPA increase**: a stronger-than-expected slowdown could lead to credit growth deceleration and rising NPAs, eroding the asset base [13].
- **PSL & RBI regulatory changes**: HDFCB participates in directed-lending and is subject to evolving RBI guidance on Basel III, CRR, LCR norms — any change can require capital infusion or operational adjustments [15].
- **Fee income deceleration**: CLSA flags that "HDFCB and Kotak disappointed slightly with a slowdown in fee income growth to 9% and 6%" in 4QFY25, vs mid-teens for ICICIB and Axis [6] — a drag on non-interest revenue diversification.

---

## Summary Table — Risk Heatmap (CLSA + HDFCB Filings)

| Risk | Severity | Time Horizon | Anchor Data |
|---|---|---|---|
| Below-system loan growth until FY27 | High (thesis-defining) | FY26 | AUM growth 7% FY25, ~8% Q1FY26 [11]; CD ratio still 95% [11] |
| NIM compression (repo cuts > SA cuts) | Medium-High | FY26 | 25bp SA cut only ~5–6bp NIM offset [2]; NIM 3.46% [12] |
| CASA stagnation | Medium-High | Structural | FY25 CASA growth +4% (worst since merger) [4]; sub-6% TD needed for recovery [7] |
| System credit growth moderation | Medium | FY26 | 11% in FY25 from 15-16% in FY23/24 [3], 20.2%→11.0% [14] |
| Unsecured retail asset quality | Medium | FY26 | GNPA up to 1.3% FY25 from 1.2% [13] |
| EPS cuts continuing | Medium | FY26-27 | CLSA FY26 PAT -2.6%, FY27 -2.0% [8] |
| Tariff / global macro | Medium | FY26 | "Corporates have adopted a wait-and-watch stance" [10] |
| CBDC deposit outflow risk | Low (long tail) | Multi-year | 20-F disclosure [15] |

**Bottom line:** HDFCB's biggest growth risk is **execution-related** — successfully reaccelerating loan growth from a deliberately depressed FY25 base while not relapsing on the CD ratio. The macro overlay (repo cuts compressing NIMs, slow CASA recovery, and a softer credit cycle) limits the upside in the interim. CLSA's O-PF rating reflects asset-quality superiority and a credible glide path, but the risk-reward depends squarely on the FY27 "above-system growth" promise materializing.

---

**Sources**
[1] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF
[2] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (SA rate cut analysis)
[3] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (Loan growth moderation)
[4] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (CASA deposit growth table)
[5] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (Deposit growth estimates)
[6] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (Fee income / ICICIB risks)
[7] India Banks (The CASA-Repo affair) — CLSA (19 May 2025) — 607959865LinqAlpha.PDF
[8] India Strategy (Good quarter but EPS cuts continue) — CLSA (9 June 2025) — 607961540LinqAlpha.PDF
[9] India Financials (4QFY25 Review: Divergent trends) — CLSA (28 May 2025) — 607960783LinqAlpha.PDF (Bandhan thesis as comp)
[10] HDFC Bank Q4 FY25 Earnings Call Transcript
[11] HDFC Bank Q1 FY26 Earnings Call Transcript
[12] HDFC Bank Q2 FY25 Earnings Call Transcript
[13] HDFC Bank FY25 20-F (Risk Factors)
[14] HDFC Bank FY25 Annual Report
[15] HDFC Bank FY24 Annual Report (Regulatory / CBDC risk)
[16] HDFC Bank Q3 FY24 Earnings Call Transcript (Macquarie Q&A)
[17] HDFC Bank Q1 FY26 Earnings Call Transcript (CASA strategy)

## Citations

- [1] **607960783LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960783LinqAlpha.PDF>
- [2] **607960783LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960783LinqAlpha.PDF>
- [3] **607960783LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960783LinqAlpha.PDF>
- [4] **607960783LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960783LinqAlpha.PDF>
- [5] **607960783LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960783LinqAlpha.PDF>
- [6] **607960783LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960783LinqAlpha.PDF>
- [7] **607959865LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959865LinqAlpha.PDF>
- [8] **607961540LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961540LinqAlpha.PDF>
- [9] **607960783LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960783LinqAlpha.PDF>
- [10] **Q4 2025 HDFC Bank Limited** · external
- [11] **Q1 2026 HDFC Bank Limited** · external
- [12] **Q2 2025 HDFC Bank Limited** · external
- [13] **FY 2025 HDFC Bank Limited** · external
- [14] **HDFC Bank Ltd. (HDB-IN) - Annual Report for period end 31-Mar-2025 (English) - PDF** · external
- [15] **Annual Report 2024** · external
- [16] **Q3 2024 HDFC Bank Limited** · external
- [17] **Q1 2026 HDFC Bank Limited** · external

