In a fresh research update dated October 19, 2025, Prabhudas Lilladher reaffirmed its BUY call on HDFC Bank, setting a target price of Rs 1,150 against the current market price (CMP) of Rs 1,003. The brokerage highlighted a strong quarter with resilient profitability, superior asset quality, and buffers that fortify the balance sheet. Core profitability improved 1.8 percent above expectations, driven by higher fee income, reduced slippages, and better recoveries. With normalized net interest margins (NIMs) and stable credit growth, HDFC Bank’s fundamentals signal a steady upcycle ahead. The report sees sustained earnings growth of 10–13 percent through FY28, supported by expanding loans, comfortable capital adequacy, and well-managed provisions.

Core Strength: Balance Sheet Reinforced

HDFC Bank’s balance sheet remained formidable this quarter, demonstrating an apex financial architecture that prioritizes stability over aggressive expansion. The Common Equity Tier-1 ratio stood at 17.5 percent, surpassing major peers such as ICICI Bank at 16.35 percent. The lender maintained buffer provisions equivalent to 139 basis points of net loans, a significant cushion when compared with ICICI’s 93 bps.
A key highlight was the Rs 20 billion reversal of NPA provisions, followed by the creation of an Rs 15 billion contingent provision, emphasizing conservative risk management.

Profitability Beats: PPoP and PAT Overperform

HDFC Bank’s core pre-provision operating profit (PPoP) rose to Rs 240 billion, exceeding expectations by 2.4 percent, propelled by robust fee income and treasury gains. Total PAT jumped 1.8 percent above projections to Rs 186 billion, even after accounting for the contingent provisioning created during the quarter.
Net interest income (NII) remained broadly in line at Rs 315.5 billion, while other income surpassed forecasts by a striking 20 percent, reaching Rs 143.5 billion.

Asset Quality Remains Elite

The bank continued to exhibit best-in-class asset quality metrics, with gross NPAs declining to 1.24 percent and net NPAs steady at 0.4 percent. Total recoveries stood at Rs 68 billion, comfortably higher than expected, reflecting adept account resolution and better collateral turnaround. Provision coverage ratio moderated slightly to 66.6 percent but remained at a robust level within regulatory comfort.

Loan Growth Gathers Momentum

Sequential credit expansion accelerated to 4.5 percent quarter-on-quarter, marking a stark rebound from 0.3 percent in Q1FY26. Growth was led by corporate (+4.7%), commercial and rural banking (+3.5%), and agriculture (+7%). Retail loans, while relatively tempered at 1.8 percent QoQ, continue to form the backbone of HDFC Bank’s strategic portfolio.
The bank tactically avoided rate cuts in the mortgage book, preferring higher spreads over market share gains, which retained quality borrowers and yield strength.

Interest Margins: Bottom Likely In

The rate-cut impact from June 2025 has largely played out, compressing yields by around 30 bps in Q2FY26. However, management signaled that NIMs have likely bottomed, with calculated NIM at 3.48 percent, marginally above estimates. As liabilities are repriced downward in the coming quarters, Prabhudas Lilladher expects a mild uptick in NIM trajectory towards FY27.

Operational Efficiency Remains High

Operating expenses at Rs 179.8 billion were broadly in line with projections, with staff costs rising 8 percent, partly mitigated by reduced other expenses. The cost-to-income ratio improved to 39.2 percent, signaling productivity gains amid sustained network expansion.
Fee income grew 8.6 percent YoY, aided by better disbursal rates and higher customer engagement through insurance and brokerage cross-selling.

Performance Snapshot

Below is a summarized extract of the company’s key standalone financials as estimated by Prabhudas Lilladher:

Valuation and Target Price

Prabhudas Lilladher values HDFC Bank using a Sum-of-the-Parts (SOTP) framework, valuing the core banking business at 2.5x Sep’27E adjusted book value, and incorporating its subsidiaries.
The target price stands at Rs 1,150, up from Rs 1,075 previously, after rolling forward valuations to FY27.

Investor Takeaways and Technical Levels

CMP: Rs 1,003

Target Price: Rs 1,150

Upside Potential: 15%

Support Zone: Rs 950–970

Resistance Range: Rs 1,120–1,150

Investment View: BUY – medium-term accumulation recommended

Time Horizon: 9–12 months

The brokerage concludes that loan growth of 12 percent in FY26–27, a steady NIM rebound, and sustained RoA near 1.9 percent fully justify its positive stance. Despite rising staff expenses and subdued retail activity, the bank’s resilient core franchise, liquidity control, and sound provisioning policy reinforce its leadership in India’s private banking sector.

Outlook: Balanced Growth, Predictable Returns

HDFC Bank’s clear lending discipline, robust coverage ratios, and calibrated deposit strategy offer assured consistency to investors amid a volatile interest rate cycle. Prabhudas Lilladher expects the bank’s valuation to re-rate modestly toward 2.8x P/ABV over the next year, driven by improving spreads and normalized growth trajectories.