HDFC Bank: The Margin Bottom Has a New Voice

A familiar NIM-trough promise meets a fresh insurance-commission shock, as Sashi hands over to Anup Bagchi.

HDB · Earnings Call · 2026-10-17

HDFC Bank: The Margin Bottom Has a New Voice

Sashi Jagdishan’s final earnings call as CEO was always going to be a victory lap. HDFC Bank’s Q2 FY27 numbers gave him one: deposits up 18.8% year on year, AUM up 15.3%, GNPA at 1.11%, credit costs at 44 basis points, ROA at 1.8%, and PAT of INR 195 billion, up 12.7% excluding trading gains. The return on assets line stayed inside its long-running 1.8%-2.0% band. But the call’s real news was less flattering: a new regulatory risk to insurance commissions, a still-unproven claim that margins have bottomed, and a CEO handoff that leaves strategy on hold.

The trough that keeps getting promised

Net interest margin was 3.32%, down again. Analysts have heard the bottom call before. In July 2025, Sashi warned there would be “a little bit of a trough in the coming months before it starts to pick up” — Sashidhar Jagdishan, Chief Executive Officer and Managing Director · 2025-07-21. In January 2026, after another soft print, Srini insisted “there is a line of sight, and these are some of those elements we work through” — Srinivasan Vaidyanathan, Chief Financial Officer · 2026-01-17. On this call, the language was almost identical: Srini said cost of funds was flat at 4.4% and that “the cost of funds is flat quarter-to-quarter at about 4.4% last quarter to this quarter” — Srinivasan Vaidyanathan, Senior Executive (likely CFO or similar) · 2026-10-17, before Sashi added “the trajectory will be upward from the next quarter onwards” — Sashidhar Jagdishan, Senior Executive (likely CFO or similar) · 2026-10-17. The difference this time is that the rate cycle has actually turned: 70% of the loan book is floating, and the 25bp October repo increase should be largely priced by December. The offset is the full-quarter cost of the special FCNR deposits. So the bottom may be real, but the proof is still a quarter or two away. Management also flagged relief from called AT1 bonds, though leverage borrowings offset much of that benefit.

Deposits: the engine is louder, the mix is not

The deposit franchise was the call’s strongest operational argument. HDFC added 1.7 million liability relationships in the quarter, 25% above Q1 and 33% above Q4 last year. Savings accounts per branch per day rose 19% between Q1 and Q2, and core incremental deposits per branch per day were up 2.3x. Those are deposits per branch metrics management has been pushing for several quarters; the global tape shows retail deposits as a top-five theme this quarter, with U.S. regional banks from BAC to USB all discussing deposit beta and funding mix. HDFC is not alone in fighting for granular household money. But the proportion of retail deposits still fell. Sashi blamed one-off outflows:

This quarter, we did have a kind of an outflow of some of these large deposits in multiple such segments, which I've just alluded to, which is actually masking it.
Sashidhar Jagdishan, Senior Executive (likely CFO or similar) · 2026-10-17

The LCR was 113%, inside the bank’s 110%-115% operating band but below the midpoint, and management admitted it had leaned on certificate of deposits and non-retail liabilities. Srini was blunt that a low LCR does not mean low liquidity — a fair point, but also a reminder that the core liability momentum story is still more promise than print.

The new item: insurance commission cut

The freshest company-specific risk came from Ankit Bihani’s question on draft insurance norms. This was not a theme on prior calls. The commission rate question matters because HDFC Bank distributes a large book of life and non-life products through its branches; a hard cut to commissions hits fee income directly. Srini did not sugarcoat it: “the cut down in the commission rates is quite high” — Srinivasan Vaidyanathan, Senior Executive (likely CFO or similar) · 2026-10-17. He listed offsets — better persistency, lower consumer cost, higher volumes, cost efficiencies — but the base case is a fee headwind arriving just as the bank needs every lever to protect returns.

Business banking is the growth offset

The asset side is improving. business banking grew 28% year on year, helped by ECLGS 5.0, where HDFC says its INR 41,000 crore of disbursals were the highest among banks. MSME end-of-period loan growth was 23.5%, versus 17%-18% in recent quarters. Retail assets ex-agri accelerated to 11.2% in September from 9.1% in June and 7.4% in March. That is the retail asset mix shift Kaizad Bharucha has been promising since at least April; this time the disbursement data supports it. The caveat is that Kaizad pushed back on the idea of chasing 10bp of yield by walking away from relationships, saying the bank would take a calibrated approach. That is sensible banking, but it also means the margin recovery is not a simple mix lever.

What actually changed

Anup Bagchi’s debut was deliberately non-committal. He promised to engage regulators, customers, shareholders and employees, and said “I will soon present a perspective on growth, margins, quality and productivity built on disciplined capital deployment and a strong execution culture grounded in governance, excellence and trust.” — Anup Bagchi, MD and CEO · 2026-10-17 That is not a strategy yet. The more important governance fact is that Kaizad Bharucha, the credit architect and asset-side head, announced his retirement effective end-December on the same call. Sashi called him one of the key architects of the institution’s credit architecture. Two of the three most senior operating leaders are now leaving within months of each other. For investors, the quarter is a classic HDFC Bank setup: strong franchise metrics, pristine asset quality, a beaten-down margin narrative, and a new management team that has not yet laid out its plan. The rate cycle has finally turned supportive, and the mix change toward retail and MSME is real. But the deposit mix, the LCR glide path and now the insurance commission reset are unresolved. The margin bottom may be here. The earnings power case still needs Anup’s strategy — and a cleaner quarter — to prove it.