HDB Financial Services: Navigating Q2 FY26 with Resilience and Strategic Growth

HDB Financial Services Limited, a prominent subsidiary of HDFC Bank, has released its unaudited standalone financial results for the second quarter and half-year ended September 30, 2025. The company demonstrated robust growth in its customer franchise and loan book, even while navigating specific asset quality challenges, particularly within its commercial vehicle financing segment. The period saw total gross loans reach ₹1,11,409 crore, marking a 1.9% sequential and a strong 13.0% year-on-year growth. Net Interest Income (NII) also expanded significantly by 19.6% year-on-year to ₹2,192 crore. However, the profit after tax (PAT) for the quarter experienced a slight dip, coming in at ₹581 crore compared to ₹591 crore in the corresponding quarter of the previous fiscal year.

Segmental Performance and Asset Quality Headwinds

The company's business is diversified across three key segments: Enterprise Lending, Asset Finance, and Consumer Finance. While Enterprise Lending, which includes secured products like Loan Against Property (LAP) and gold loans, showed moderate growth, the gold loan portfolio gained good traction. The Asset Finance segment, however, faced notable headwinds. Management candidly discussed asset quality challenges in commercial vehicle (CV) financing, which persisted from Q1 into Q2. This was primarily attributed to monsoon-related disruptions, including flash floods in North and East India, leading to increased vehicle idling and impacting customer cash flows. Additionally, a deferment of demand for vehicles due to GST rate rationalization also played a role. Consequently, Gross Stage 3 assets increased to 2.81% as of September 30, 2025, up from 2.10% a year ago, and credit costs rose to 2.7% of the average loan book.

Financial Summary (Q2 FY26 vs. Q2 FY25)

Strategic Outlook and Digital Prowess

Despite the challenges, management expressed optimism for the upcoming quarters, particularly with the festive season. They anticipate a positive momentum in book growth for Asset Finance, bolstered by government policy changes like GST rate cuts. The Consumer Finance segment is also expected to see a significant pickup in demand for auto, two-wheelers, and consumer durables, driven by the festive season, easing inflation, and favorable agricultural outcomes. The company is targeting an 18-20% CAGR book growth over the next 3-5 years and aims to bring down its credit cost to approximately 2.2% in the medium term, aligning with its diversified product mix.

HDB Financial Services is also making significant strides in its digital transformation. The launch of 'TRINETRA,' an IT Command Centre, and the comprehensive 'HDB OnTheGo' app underscore its commitment to leveraging technology for enhanced customer experience and operational efficiency. The app offers a unified platform for various loan-related services, from pre-approved offers to EMI payments and loan application tracking. Furthermore, the company's achievement of ISO 27001:2022 for Information Security Management and ISO 22301:2019 for Business Continuity Management highlights its focus on robust operational frameworks and risk management.

Capital Adequacy and Future Focus

The company maintains a strong capital position, with a total Capital to Risk-weighted Assets Ratio (CRAR) of 21.82% as of September 30, 2025. This robust capitalization provides a solid foundation for future growth and resilience against market fluctuations. The borrowing mix remains well-diversified, with 40% from bank loans and 37% from Non-Convertible Debentures (NCDs), ensuring stable funding. Management emphasized its commitment to a balanced return strategy, focusing on growing its diversified portfolio across all products and markets. The company's proactive approach to risk management, coupled with its digital initiatives and strong capital base, positions it for sustained growth in the dynamic Indian financial services landscape.

In conclusion, HDB Financial Services Limited's Q2 FY26 results reflect a period of strategic navigation through temporary headwinds. While asset quality and credit costs require continued monitoring, the underlying growth in its customer base and loan book, coupled with a clear strategic vision and robust digital investments, points towards a confident outlook for the future. The company's disciplined execution and focus on long-term value creation remain central to its narrative.