HDFC Bank braces for rate-cut hit

Margin moderation ahead

- Manish Joshi

HDFC Bank's net interest margin (NIM) for the quarter ending March (Q4FY25) has expanded 2-3 basis points (bps) sequentially and year-on-year to 3.46% after excluding the interest income on income tax refund worth ₹700 crore.

While this is praiseworthy, it will be interesting to see how the bank deals with the Reserve Bank of India's (RBI) rate-cutting cycle, which is likely to be deeper than envisaged.

The RBI has cut the repo rate in February and April by 25bps each to 6%.

With the regulator projecting the consumer price index (CPI) or retail inflation for FY26 at 4%, there could be further rate cuts in the offing, with real interest rate, i.e., nominal repo rate minus inflation, currently at 2%.

One basis point is one-hundredth of a percentage point.

During the post-earnings call, HDFC Bank revealed that nearly 70% of its loans are on a floating rate basis (a large chunk of them linked to the repo rate), with the rest being fixed-rate loans.