HDFC Bank Plans to Bring Loan-to-Deposit Ratio Back to Pre-Merger Levels in 2-3 Years: CFO

HDFC Bank, India’s biggest private bank, plans to reduce its loan-to-deposit ratio (LDR) to the levels it had before merging with Housing Development Finance Corporation (HDFC) in July 2023. Before the merger, the LDR was around 86-87%, but it jumped to 110% after the merger, said CFO Srinivasan Vaidyanathan during an earnings call.

The bank is working towards lowering this ratio to the high 80s in the next two to three years. A lower LDR helps a bank maintain better liquidity, ensuring it has enough deposits to support loan growth. As of September, HDFC Bank’s LDR was still high at about 100%.

To help manage the high LDR, the bank securitised ₹190 billion worth of loans between July and September, selling packaged loans to investors. Vaidyanathan said this process would continue over the next 4-5 years.

Following the merger, HDFC Bank gained a large number of loans but fewer deposits, putting pressure on the bank to increase its deposit base or slow down loan growth.

In the July-September quarter, the bank’s gross loans grew by 1.3%, while deposits rose by 5.1% to ₹25 trillion. HDFC Bank plans to grow loans slower than the banking system this year, but expects to outperform the system next year.

The bank posted a net profit of ₹168.21 billion for the July-September period, up 4% from the previous quarter, exceeding analysts’ predictions. Its net interest income, which is the difference between interest earned and paid, rose by nearly 1%, while its nonperforming assets ratio increased slightly to 1.36% from 1.33%.