Broker’s call: HDFC Bank (Outperform)

Target: ₹2,550

CMP: ₹1782.30

Given HDFC Bank’s low-CASA, mortgage-heavy post-merger balance sheet, the understandable reflex is to see rate cuts as a serious headwind for HDFCB. In reality, expiry benefits of legacy high-cost NCDs/FDs inherited from the parent balance sheet; immediate benefits of rate cuts on short-term borrowings (10 per cent of NDTL); and a likely CASA revival from monetary/liquidity easing – bode well for FY26 RoA outlook of our top pick within the banking space.

Rate cuts are actually a medium-term positive for banks; HDFCB has unique tailwinds Most of the street sees rate cuts as a pressure point on bank margins. In ‘Rate cuts – a belated gentle tailwind’, we demonstrate two things. First, for our coverage private banks, the margin impact of rate cut (already built into estimates) is not terribly high (2HFY25 earnings slower by 3-6 per cent than they would be otherwise). Second, an easing cycle comes with delayed benefits of FD repricing, increased CASA momentum or likely loan mix shift.

HDFC Bank specifically has the additional tailwinds of expiries of higher-cost NCD and FDs that it inherited from its parent entity, in its margin journey. We address the CDR/LCR concerns raised about HDFCB’s growth outlook and substantiate our prognosis of ‘growth-as-usual’ from FY26 onwards.