Why Is Citi Optimistic on HDFC Bank Despite Modest Deposit Growth?
HDFC Bank remains under close investor focus after global brokerage Citi reiterated its positive stance on the lender, setting a target price of ₹1,180. The optimism stems from the bank’s robust growth in advances and its continued focus on sustaining healthy net interest margins (NIMs), even as deposit growth remains modest. Citi’s update offers deep insights into the performance dynamics that could define India’s largest private lender’s near-term trajectory.
About HDFC Bank and Citi’s View
Citi’s coverage on HDFC Bank underlines a bullish long-term outlook, highlighting the bank’s expanding advances book, improved asset quality, and continued digital transformation. The note mentions that HDFC Bank’s credit growth outpaced many peers during Q2 FY26, supported by sustained demand in retail and SME segments. Citi expects the bank’s ongoing investments in technology and risk management to yield structural margin stability in the coming quarters.
Advances Growth Hits Industry Average
HDFC Bank recorded a 4.4% quarter-on-quarter surge in advances, bringing it in line with the broader industry average. This marks a return to growth momentum following a few quarters of consolidation post-merger with HDFC Ltd. The bank’s retail book, especially in personal loans, gold loans, and auto financing, was a major driver behind this acceleration.
Citi pointed out that this rebound reinforces HDFC Bank’s ability to regain credit market share, an important aspect given the increased competition from public sector banks and smaller private lenders. The strong advances performance also helped offset the impact of slower deposit accretion during the quarter.
Deposits and LDRS Expansion
While advances surged, deposit growth was described as “modest.” HDFC Bank reported stable CASA ratios but saw a marginal increase in term deposits. The Loan-to-Deposit Ratio (LDR) expanded by approximately 280 basis points, reflecting a tighter funding scenario. However, the bank continues to maintain a comfortable liquidity coverage ratio, ensuring it can sustain credit delivery momentum without compromising on prudence.
Citi analysts believe that the next phase of growth will depend on the bank’s ability to improve deposit mobilization, particularly from retail customers. Initiatives such as targeted branch expansion and digital onboarding are expected to support this strategy over FY26.
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Focus on NIMs and Profitability
HDFC Bank continues to prioritize margin protection, with management guiding for stable Net Interest Margins (NIMs) over the next few quarters. The impact of the merger has gradually normalized, and the yield on assets is improving as lending activity in high-yield retail segments rises. Citi expects operating leverage to strengthen as costs stabilize and credit costs remain contained.
Additionally, HDFC Bank’s treasury operations and cross-selling franchise remain robust, ensuring diversified income streams even amid volatile rate environments. The focus on granular credit and digital integration is expected to sustain profitability well into FY26.
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Investor Takeaway
Citi’s reaffirmation of a ₹1,180 target on HDFC Bank underscores its confidence in the lender’s operational resilience. With improved loan growth, disciplined NIM management, and an expanding digital footprint, the bank stands well-positioned for FY26. Investors may continue to view HDFC Bank as a long-term compounding story in India’s financial sector, though near-term focus will remain on deposit traction and cost management.
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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
