On HDFC Bank’s stated goal of bringing down its loan-to-deposit ratio (LDR) to 90% by FY27, Vaidya said the target, while not impossible, appears challenging under current growth assumptions.
“So yes, about 90% odd of LDR by FY27 may be possible though it looks difficult because if loan growth is 200 basis points higher than systemic growth, so that is pegging loan growth to about 15 odd percent for FY27. Deposit growth will need to be at least 400 to 500 basis points higher than credit growth. Of course, the bank has levers to accelerate deposit mobilisation, but our estimate suggests that for HDFC the LDR by FY27 would stabilise somewhere between about 91–92 odd percent,” she said.
She added that achieving aggressive deposit growth would largely depend on CASA mobilisation and the bank’s branch network maturity.
“Slightly difficult, yes, but if we take about an 18% growth, now that would come from aggressive CASA mobilisation leveraging their branch network because the management has highlighted that branches that mature over five plus years of vintage generally have the ability to garner roughly three times more deposits. So, they have a fair enough chunk that moves into the five-year-plus vintage, so they could leverage that branch network, also deepening relationships,” Vaidya explained.
According to her, while deposit accretion could be aided by the bank’s strong mortgage and credit card franchises, returning to pre-merger LDR levels may be tough.
“So, leveraging that, the bank could accelerate it, but yes, going back to the pre-merger levels of LDR in the current scenario looks a little difficult. So, pre-merger would be somewhere between 87–88; early 90% is what we are looking at for FY27,” she said.On profitability, Vaidya addressed questions around HDFC Bank’s return on assets (ROA) and the impact of one-off adjustments during the quarter.
“Yes, so, the 8 billion one-off that they had in the earnings was a little bit of a surprise. It was on the higher side, and the management has also clarified that these are on the higher side when it comes to estimates given the data that was available,” she said.
Excluding these adjustments, she noted that credit costs remained benign.
“Ex the 5 billion one-off provision that the bank had to take for the PSL-compliant agri loans, credit costs were more or less stable because, barring the seasonal agri slippages, they have been fairly under control and it has been a benign credit cost environment, especially for HDFC Bank. So, 1.8 to 1.9 is something that the bank has been delivering,” Vaidya added, while pointing out that the quarter still surprised positively with an 8-basis-point improvement in margins.
Turning to ICICI Bank, she said the earnings miss was largely driven by a reclassification-related provisioning hit.
“Yes, so, this was one of the major reasons why there was a large miss on the earnings estimates for ICICI Bank. However, if these loans are classified as PSL loans, there would definitely be the provision reversal, which should then aid better credit costs,” she said.
She emphasised that underlying asset quality trends remained stable.
“But barring this, though, the credit costs have been largely stable. We have not seen a problem. It has been in the range of 35–36 odd basis points, and that is a steady-state credit cost that the bank has been delivering,” Vaidya noted.
On the reappointment of ICICI Bank MD and CEO Sandeep Bakhshi, she said the move removes a key overhang for the stock.
“So yes, definitely the extension of term for the current MD was an overhang for the stock. Now, with the reappointment for two years until October 28, it will definitely be read as a positive for the bank and that should help stock performance going ahead also,” she said, adding that healthy earnings growth should further support valuations.
Despite HDFC Bank currently lagging ICICI Bank on ROA and NIMs, Vaidya expects the valuation gap between the two to narrow over time.
“Yes, definitely HDFC, we have seen there is a gap in valuation, but we expect some narrowing of the valuation gap for HDFC and ICICI. What works for HDFC is that we should see margin improvement better than ICICI for HDFC Bank, and that should be led by an improving CASA mix, accelerating growth and also lower cost of funds,” she said.
She also ruled out major concerns on asset quality for either lender.
Looking at near-term stock performance, Vaidya said recent corrections could offer an entry opportunity in HDFC Bank.
“So, we have seen that the stock has corrected in the past month, especially post the provisional figures came out. So, we believe that this is a good price to enter HDFC Bank and, given that it has been a largely inline set of numbers and no concerns over any of the key parameters for the bank, we expect to see a positive impact on the stock in today’s trading session,” she said.
For ICICI Bank, she expects a more muted reaction.
“When it comes to ICICI, yes, the credit cost did negatively surprise. However, as you mentioned, the MD’s reappointment is a positive, so flat to mild positive could be seen in today’s trading session for ICICI,” she added.
Among mid-sized lenders, Vaidya highlighted Federal Bank as a standout performer.
“For Federal, very good set of numbers, actually a stellar performance this quarter. Margin surprises positively. Overall growth is coming back after the reorientation of the strategy. Most key parameters are falling into place how the management had envisaged,” she said.
She expects a steady improvement in Federal Bank’s ROA over the next few years.
“So, from 1.1% in FY26, we view a sharp improvement to 1.4% by FY28, largely driven by margin improvements and a steady decline in overall opex ratios,” she said, reiterating a positive stance on the stock.
Summing up the broader earnings season, Vaidya said mid and smaller banks have outperformed larger peers on margins, broadly in line with expectations.
“Amongst the larger banks, we prefer Kotak and HDFC. Amongst the mid-sized banks, we like Federal, and amongst the small finance banks, we remain positive on Ujjivan,” she concluded.