HDFC leads Indian banks lower as weak margin disappoints

Indian banks slid on Monday, led by a more than 5% drop in top private lender HDFC Bank, as weaker-than-expected lending margin raised concerns about profitability.

Private lenders HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank reported their June quarter results over the weekend, with loan growth strong, but margins under pressure amid greater competition and higher funding costs.

India’s private bank shares slid 2.3%, financials declined 1.2% and the Nifty banks index fell 1%. The broader Nifty 50 inched 0.4%

lower.

“HDFC Bank was relatively weaker” among major private lenders this quarter, Jefferies said, noting that its push into faster-growing corporate loans came at the cost of margins.

The lender’s net interest margin, a key gauge of profitability, stood at 3.26%, below the 4% level before its merger with parent HDFC in 2023.

India’s HDFC Bank reports 5% rise in Q1 profit, meeting estimates

Citi trimmed its fiscal 2028 earnings estimates for HDFC Bank by 1%-2% on softer fee income and weaker-than-expected net interest income.

“While margins were expected to contract this quarter, those of HDFC and Axis disappointed as they dropped more than expected and that can be seen in the market reaction as well,” said Anand Dama, executive director and head of BFSI at Nuvama Institutional Equities.

“Meanwhile, ICICI Bank and Federal Bank were outliers as their results were a positive surprise,” Dama said.

Investec downgraded HDFC Bank to “hold” from “buy” while Bernstein upgraded ICICI Bank to “outperform” from “neutral”.

ICICI Bank, which analysts described as the sector’s strongest performer, rose 1.1% after an earnings beat and was the top gainer on the private bank index. Federal Bank ended 0.5% higher.

Loan growth among major private banks remained in the 15%-20% range during the quarter, according to Jefferies.

Axis Bank dropped 5.5% and Kotak Mahindra Bank declined 2% after posting results that were in line with estimates.