The Merger's Ripple Effect on Credit Growth

The merger between HDFC and HDFC Bank in FY24 has significantly influenced the banking sector's credit growth, with effects still evident in FY26. The combined entity's loan growth plummeted from a robust 15-17% pre-merger to a mere 5.4% in FY25, lagging behind the industry's pace in the June quarter.

Strategic Slowdown for Stability

HDFC Bank's deliberate slowdown in loan growth was part of a strategic move to restore balance sheet stability. This followed a spike in the credit-deposit ratio and a skewed funding mix after absorbing HDFC's Rs 6 lakh crore loan book. Despite gaining market share, the bank's contribution to incremental credit growth has been limited, affecting the broader banking system.

Challenges in the Home Loan Segment

The home loan portfolio, once HDFC's forte, grew only 7% year-on-year, underperforming the industry's 9% growth. Facing intense competition, especially from public sector enterprises offering lower rates, HDFC Bank has opted to focus on service quality and broader customer relationships rather than competing on price.

Optimism for Recovery

With the festival season approaching, HDFC Bank anticipates a recovery in consumption across urban and rural areas. Lower rates and fiscal incentives are expected to drive growth, alongside rising momentum in the MSME segment, buoyed by early exports anticipating tariff changes.

Strengthening Human Resources

The bank has added approximately 4,000 employees this quarter, primarily to bolster branch operations. This move aligns with its long-term strategy to enhance customer-facing roles and revenue-generating activities.