HDFC Bank Q1: Deposits Grow Faster Than Loans, Signaling Shift in Strategy

Bank Slows Lending to Focus on Deposit Growth and Liquidity Planning

A year ago, investors were watching HDFC Bank’s loan expansion with optimism. Its merger with HDFC Ltd had created the largest private bank in India by assets. But in the latest quarter, the bank appears to have turned a different page.

Deposits are now growing faster than loans. According to the bank’s quarterly update released on July 3, 2025, total deposits stood at ₹27.64 trillion by the end of June, marking a growth of 16.2% compared to the same quarter last year. In contrast, gross advances stood at ₹26.53 trillion, with a year-on-year growth of 6.7%.

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This trend points to a change in priorities. Instead of chasing aggressive lending targets, HDFC Bank seems to be focused on strengthening its funding base and lowering its lending-deposit ratio. Analysts have viewed this shift as a way to improve long-term stability.

The Composition of Deposits Tells a Clearer Story

In the three-month period ending June 30, 2025, time deposits showed much sharper growth than demand accounts. This is an early indicator of customer behaviour in a high-interest environment.

The rise in time deposits suggests customers are shifting money into fixed instruments to secure better returns. At the same time, the bank is offering relatively lower savings rates to manage interest expenses, which may explain why current and savings account growth is lagging behind.

Still, average CASA (Current Account Savings Account) deposits rose to ₹8.6 trillion this quarter, compared to ₹8.1 trillion in Q1 last year.

Let’s now examine how loans have progressed during the same period.

Loans Are Slowing Down, Securitisation Picks Up

While advances have grown over the past year, the pace has dropped. In fact, sequential growth from March to June was just 0.4%, which is low for a bank of this size.

To manage funding requirements and capital adequacy, the bank has also been active in the securitisation market. In Q1 FY26, it sold loan portfolios worth ₹33 billion. This practice allows the bank to free up capital while earning servicing income. The bank’s CFO had earlier mentioned a goal of building a strong pipeline in this space over the next two years.

The same claims are supported by the retail loan demand dip in Q4. Click here to read more.

Now that loan growth is slowing and securitisation is growing, the next logical focus is on the loan-to-deposit ratio.

A Deliberate Move to Rebalance the Balance Sheet

The loan-to-deposit ratio (LDR) is a key metric that shows how aggressively a bank is lending compared to the deposits it holds. A lower ratio gives a bank more comfort in handling future liquidity requirements.

The bank’s LDR has decreased by over 1 percentage point, indicating a cautious stance on new lending. This may also reflect the bank’s intent to maintain tighter liquidity coverage, especially with recent Reserve Bank guidelines that have made lending to unsecured segments more capital-intensive.

This leads to the next development: capital and liquidity strength.

Strong Capital and Liquidity Metrics in Place

In its latest financial disclosure, HDFC Bank reported a Capital Adequacy Ratio of 19.6%. Liquidity Coverage Ratio remained above the regulatory requirement at 117%, showing that the bank is well-positioned in terms of financial buffers.

Gross Non-Performing Assets remained stable, with no major deterioration reported. These numbers reinforce the bank’s current focus on funding discipline, credit quality, and liquidity comfort.

Let’s turn now to what analysts and sector trends are saying about this shift.

A Sector-Wide Lending Slowdown Adds Context

The Reserve Bank of India, in its June 2025 “Quarterly Banking Indicators” report, mentioned that aggregate credit growth for all scheduled commercial banks was only 0.4% in the quarter leading up to June 13. That figure is lower than the seasonal average for Q1, which typically ranges between 1.5% and 2%.

Also Read - HDFC Bank Current Account – Features, Benefits & Application Guide

HDFC Bank’s performance seems to mirror this wider trend. Lending has slowed across the sector, possibly due to the impact of recent curbs on unsecured retail loans and expectations of rate changes.

This environment has prompted banks to focus more on deposit mobilisation and cost control. HDFC Bank’s strategy appears aligned with this larger picture.

So what does this mean for investors, depositors, and policymakers?

Conclusion 

The bank may continue to securitise more loans and adjust deposit pricing, depending on market demand. As economic conditions evolve, the ability to lend quickly will depend on how well liquidity and funding are managed today.

As the new quarter begins, observers will watch closely to see if this cautious strategy continues or shifts with changing rate dynamics. Either way, the message is clear: balance sheets, not just balance growth, will define the next phase for India’s largest private bank.
 

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