HDFC Bank Q3 FY26 Results: Unpacking the 2026 Valuation Potential

Investors were keenly awaiting the results of HDFC Bank, in a bid to understand how well the bank would manage the pressure on net interest margin (NIM). HDFC Bank had grown its advances by 12% y-o-y in Q3FY26, as compared to a 2.9% y-o-y growth in its loans in the December 2024 quarter, and investors were keen to understand its impact on various operational parameters. HDFC Bank has been very cautious on growing its loan book, given its credit to deposit ratio is well over 90%. Efficiency Through Automation and AI Apart from strong loan growth, the Mumbai-based bank has highlighted a key operational parameter – its cost efficiency structure is under tight check. Its cost to income ratio was 39.2% in Q3FY26 vis-a-vis 40.6% a year, excluding one-time cost of Rs 800 crore related to the new labour code in the December 2025 quarter. A part of this efficiency gain could be attributed to increased automation and use of AI-related technology in daily operations, which helps HDFC Bank to keep operational costs under check. Also, its employee numbers were broadly flat at 2.15 lakh employees in December 2025 quarter vis-a-vis 2.1 lakh employees a year earlier. Managing this cost efficiency ratio will play a key role in driving profit growth for HDFC Bank going forward, and investors will pay close attention along with other operational parameters. To the bank’s credit, HDFC Bank has also kept its low-cost CASA (current and savings account) stable at 34% in the December 2025 quarter on a y-o-y basis, and it would help the bank deal better with pressure on NIM. Investors have been quite optimistic on HDFC Bank – the stock ended Friday’s trade with a gain of 0.6% to Rs 931, and trading not too far from its 52-week high of Rs 1,020.4 that was reached on 23 October, 2025. Q3FY26 – Growing loan book and managing NIM pressure HDFC Bank’s net interest margin (NIM) was 3.5% based on interest earnings assets in the December 2025 quarter vis-a-vis 3.6% a year earlier. Its advances were Rs 28.21 lakh crore at the end of Q3FY26, a growth of 12% y-o-y. HDFC Bank in its investor presentation has highlighted its retail loans grew 6.9%, small and mid-market enterprises loans grew by 17.2%, business banking grew 19.8%, and corporate and other wholesale loans grew by 10.3% in Q3FY26. Retail loans like gold loans and loans to smaller enterprises enable banks to earn a higher rate of interest on loans / credit vis-a-vis loans to top rated corporates. This helps them manage the pressure on NIMs. The RBI has taken several steps to boost lending in the broader banking system and this includes the cut in repo rates in early December 2025. This in turn has put a temporary pressure on NIMs of banks. Strong asset quality Asset quality of HDFC Bank has been quite stable — its % of net NPAs to net advances was 0.42% in the December 2025 quarter vis-a-vis 0.46%. HDFC Bank has one of the lowest NPA ratios in the domestic banking industry and it also sets benchmarks for other banks. Its provisions have also come down by nearly 10% y-o-y to Rs 2,837 crore in the December 2025 quarter, and it helped the Mumbai-based bank’s standalone net profit to rise 11.5% y-o-y to Rs 18,635.8 crore in the quarter under review. HDFC Bank’s core banking operations are reflected in its standalone results. Efficiency kings – Return on Assets (RoA) HDFC Bank’s return on assets (average) – not annualized was 0.48% in the December 2025 quarter, and on annualizing it for FY26 it would be nearly 1.92%. HDFC Bank along with smaller rival, Kotak Mahindra Bank have one of the highest RoAs in the banking industry, over the past several quarters. Kotak Mahindra Bank will declare its results on January 23. Growth outlook and valuations Investors will be closely monitoring HDFC Bank and other leading banks to grow their loan book over the next few quarters as well as manage the pressure on NIMs and other key operational parameters. HDFC Bank trades at a standalone P/E of 20.1 times, according to Screener.in. HDFC Bank trades at a valuation metric, price to (standalone) book value of nearly 2.8 times, according to Screener.in. Over the past 5 years, the HDFC Bank stock has traded at a price to (standalone) book value between 2.1 times and 4.8 times. Kotak Mahindra Bank trades at a standalone P/E of 31, and at a price to (standalone) book value of 3.3 times. Over the past 5 years, Kotak Mahindra Bank has traded at a price to (standalone) book value between 3.1 times and 7.1 times. The largest private sector bank is currently trading closer to the lower end of its price to (standalone) book value and at much lower valuations to Kotak Mahindra Bank. Investors could add HDFC Bank to their watch list of stocks for the current calendar year. Disclaimer: Amriteshwar Mathur is a financial journalist with over 20 years of experience. The writer and his family have no shareholding in any of the stocks mentioned in the article. Disclaimer: The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.