HDFC, ICICI flag growth slowdown, uncertain macroeconomic environment

HDFC Bank and ICICI Bank kicked off the earnings season for Indian banks by reporting steady fourth-quarter and 2024-25 results in terms of profitability and asset quality. However, both banks noted that uncertainty clouds the outlook on the future trajectory of rate cuts, the need for deposit mobilisation, and pressure on net interest margins (NIM).

Mint summarises commentary and guidance provided by the two banks in their post-earnings call on 19 April:

Sandeep Batra, executive director, ICICI Bank

-Rate cuts will impact margins in the first half of 2025-26. The bank expects more rate cuts after the two consecutive 25 basis point cuts.

-The focus is on overall quantum and cost of deposit mobilisation, not necessarily on CASA (current account and savings account) and retail deposits alone.

-The focus is also on pre-provisioning operating profit and return on capital, not just holding onto margins.

-The bank has reduced savings account interest rates following the two RBI rate cuts. It will also look at fixed deposit rates over a period of time, depending on market conditions, loan growth and competition.

-Loan growth primarily slowed down in the unsecured loan segment during 2024-25. Personal loans grew 4.2% on-year to ₹1.2 trillion, and credit cards by 11.7% to around ₹57,000 crore as of March 2025.

-The bank will continue to give unsecured loans as long as it is comfortable with the quality of customers.

-Delinquencies in unsecured loans were marginally higher in 2024-25 than 2023-24 but remain “low in the overall context”. The bank has strengthened credit parameters such as profile track records, bureau scores, and customer leverage over the past 12-15 months.

-The bank is seeing strong competition, intensity, and pricing from peers, especially in mortgage and corporate loans. It is focussing on appropriate spreads over the benchmark to sustain profitability.

-Retail and rural loan slippages at ₹4,300 crore accounted for the bulk of the ₹5,100 crore slippages during the quarter. The bank will focus on the quality of customers and closely monitor this portfolio to identify any buildup of early stress.

-Liquidity is challenging, and the bank will continue strengthening its capital position. Hopefully, proactive steps by the government and the RBI will help mitigate challenges, but the global environment remains uncertain and will put pressure on long-term growth.

Srinivasan Vaidyanathan, chief financial officer, HDFC Bank

-The bank is managing pricing tightly between the asset and liability sides. Rate cut transmission will be faster on the asset side and will lead to short-term movement in NIM. Over the longer term, margins will be stable.

-The bank endeavours to return the credit-deposit (CD) ratio to its pre-merger level of around 85-90% by 2026-27. 

-The bank remains competitively priced on deposit rates, in line with other top five banks in the country. There’s no particular rate-related advantage on savings deposits for customers, but the bank is confident of accruing deposits based on distribution strength, customer addition, and engagement.

-Loan growth in 2025-26 to be in line with the market. Following that, loan growth will exceed system growth in 2026-27, allowing the bank to gain market share even on the lending side.

-The bank will continue selling retail loans over 3-5 years to strategically manage the loan growth rate. The quantum of loan securitisation will depend on market opportunity, appetite for pooled loans.

-State-run banks are undercutting loan pricing, especially on large-ticket wholesale and mortgage loans. The bank will focus on multi-product corporate and customer relationships rather than just lending to maintain corporate loan market share.

-There are pockets of opportunity in corporate lending. The bank’s focus will be on geographical expansion to over 700 districts across the country to cater to small and medium enterprises. 

-The focus remains on deposit mobilization through distribution expansion, reaching closer to customers, increased engagement by relationship managers (RMs) and improving branch productivity.

-The greatest opportunity is retail loans due to low credit penetration in that segment.

The middle-to-low-income mortgage segment is seeing a slowdown due to lower inventory and reduced affordability due to inflation eating into disposable incomes. There’s a reasonable demand at the highest income level, but lending is limited because customers use their own funds.