HDFC Bank: Loan Mix Shift Drives Margins

HDFC Bank (NSE : HDFCBANK) is India’s largest private sector bank by assets. It serves retail, SME, corporate and wholesale customers across lending, deposits, payments and wealth management. It merged with HDFC Ltd in 2023 and has been rebalancing its loan book toward higher-margin segments since. What happened: In Q2FY27, loans grew 16.4% year on year to Rs 31.95 lakh crore. SME and mid-market loans grew 23%; corporate and wholesale loans grew 16.4%. Deposits grew 18.8% to Rs 33.27 lakh crore; time deposits rose 22.8%. Overseas branches raised nearly Rs 1.1 lakh crore via FCNR(B) deposits and extended about Rs 54,800 crore in loans against them. Net interest margin was 3.3% on interest-earning assets. Standalone net profit grew 4.7% to Rs 19,510 crore, held back by a 10.7% rise in tax expenses. Why it matters: The loan mix is shifting toward higher-margin SME and mid-market segments, supporting NIMs even as the RBI maintained a soft rate stance for much of FY27. Asset quality remained among the industry’s best; net NPA ratio was 0.37% and the bank held a floating provision of Rs 9,000 crore from FY26. Return on assets (annualised) was approximately 1.8%. The bank appointed Anup Bagchi as managing director and CEO for three years from October 27, 2026. What I am watching: Deposit growth at 18.8% now exceeds loan growth at 16.4%, improving the loan-to-deposit ratio. NIMs and credit costs over the next two quarters will show whether post-merger rebalancing is complete. My stance: HDFC Bank trades at 1.9 times book value, near the lower end of its five-year range of 1.8 to 4x. Fundamentals are intact and the loan mix shift is a positive. Patience is the right trade here. I do not hold a position in HDFC Bank at the time of writing. This is not investment advice.