HDB Financial Q1 FY26: Profit slips, revenue up 15%

What HDB Financial reported in its June quarter

HDB Financial Services, a subsidiary of HDFC Bank, reported its Q1 FY26 earnings with a mixed set of signals: steady loan growth and healthy margins, but higher provisions and weaker asset quality. The company posted a profit after tax (PAT) of ₹568 crore for the April to June quarter, down from ₹582 crore in Q1 FY25. At the same time, revenue from operations increased 15% year-on-year to ₹4,465 crore from ₹3,884 crore.

The results are being tracked closely because this quarter marked the NBFC’s first reported earnings after it became a listed entity. Investors have also been watching whether the company can sustain growth while keeping credit costs under control, given the broader cycle for unsecured and small-ticket loans.

Market reaction and earlier profit-led rally

In a separate, earlier update for the quarter ended March 31, the company reported a sharp improvement in profits and saw a strong stock reaction. Shares rose as much as 11% on the day after the non-banking lender reported a 41.4% year-on-year rise in quarterly profit, which it linked to improved margins and better asset quality.

For that March quarter, net profit was reported at ₹751 crore, and another figure in the provided data points to quarterly net profit of ₹581.7 crore (₹5,817 million), described as being supported by strong lending growth and full NCD utilisation. The March-quarter announcement also highlighted lower credit costs and improving asset quality.

Against that backdrop, the Q1 FY26 print shows that the operating engine remained intact, but credit costs moved up.

AUM and loan book: steady expansion continues

In Q1 FY26, HDB Financial Services reported Assets Under Management (AUM) of ₹109,690 crore, up 14.7% year-on-year from ₹95,643 crore. Total gross loans were reported at ₹109,342 crore, a 14.3% year-on-year increase. The company also indicated the gross loan book was up 2.31% sequentially.

The portfolio mix was largely unchanged year-on-year. Of the total gross loan book, Enterprise Lending accounted for 38.7%, Asset Finance for 37.8%, and Consumer Finance for 23.5%. Secured loans formed 73% of the loan book, which is relevant when assessing recovery expectations and provisioning sensitivity.

Revenue and income: NII rises, total income grows

The company’s Net Interest Income (NII) rose 18.3% year-on-year to ₹2,092 crore, compared with ₹1,768 crore in Q1 FY25. It also disclosed a sequential increase in NII from ₹1,973 crore in Q4 FY25, translating to 6% quarter-on-quarter growth.

Total net income (NII plus other income) increased 14.2% year-on-year to ₹2,726 crore. The reported net interest margin (NIM) was 7.7%, marginally higher than 7.6% in the year-ago period.

Separately, for the March-quarter reporting referenced in the data, net interest income was stated at ₹2,399 crore (₹23.99 billion), up 21.6%, and AUM was stated at ₹119,000 crore (₹1.19 trillion), up 10% year-on-year.

Operating performance: pre-provision profit improves

HDB Financial’s pre-provisioning operating profit (PPOP) for Q1 FY26 stood at ₹1,402 crore, up 17.2% from ₹1,196 crore in Q1 FY25. This indicates that core operating momentum remained healthy, helped by growth in the loan book and improved income.

But the strength at the PPOP level did not translate into bottom-line growth because provisioning moved up sharply.

Provisions and credit cost: the main pressure point

For Q1 FY26, loan-loss provisions increased to ₹670 crore from ₹412 crore in Q1 FY25. The company disclosed credit cost of 2.5% of gross loans, higher than 1.8% in Q1 FY25.

As a result, profit before tax (PBT) was ₹733 crore, down from ₹784 crore a year earlier. PAT slipped to ₹568 crore from ₹582 crore, and the return on average assets was reported at 1.9% annualised, compared with 2.4% in Q1 FY25.

Asset quality: Stage-3 metrics worsen year-on-year

Asset quality weakened during the quarter. Gross Stage-3 assets rose to 2.56% of gross loans, compared with 1.93% in Q1 FY25. Net Stage-3 assets increased to 1.11% from 0.77% a year earlier.

In absolute terms, Stage-3 loans were ₹2,794 crore as of June 30, 2025, compared with ₹2,414 crore in the previous quarter and ₹1,843 crore a year ago. Provision coverage on Stage-3 assets stood at 56.70%, down from 60.24% in Q1 FY25.

The investor presentation data also showed Stage-3 provisions of ₹1,584 crore as on June 30, 2025, up from ₹1,351 crore as on March 31, 2025, and ₹1,110 crore as on June 30, 2024.

Disbursements: year-on-year decline

While the balance sheet expanded, disbursement volumes were lower. Disbursements fell 8.09% year-on-year to ₹15,171 crore from ₹16,507 crore in the year-ago period. Disbursements were also lower compared to ₹17,643 crore in the previous quarter.

This divergence matters because it can shape near-term growth composition, and it may also reflect tighter underwriting, mix changes, or demand patterns. The company’s reported loan book growth suggests that repayments and run-off were still covered by disbursements, but the pace of fresh originations moderated.

Key financial snapshot (Q1 FY26 vs Q1 FY25)

Market impact: what investors are likely to track

For investors, the quarter sets up a clear set of monitorables. The company delivered double-digit growth in AUM and strong NII growth, and margins held up at 7.7%. These factors typically support earnings resilience in a lending business.

But credit cost and Stage-3 indicators moved in the opposite direction. Provisions increased materially, gross Stage-3 rose to 2.56%, and provision coverage declined to 56.70%. That combination explains why PAT declined despite better operating profit.

Analysis: balancing growth, margins, and risk costs

The Q1 FY26 numbers illustrate the trade-off lenders face when scaling portfolios in a mixed credit environment. HDB Financial’s operating performance shows that the lending franchise continues to expand and generate income, supported by mid-teens balance sheet growth and a stable margin profile.

At the same time, the quarter highlights that the cost of risk can swing meaningfully and absorb operating gains. With Stage-3 loans rising in absolute terms and as a percentage of the book, the trajectory of recoveries, slippages, and provisioning will likely shape how quickly profitability normalises.

Conclusion

HDB Financial Services reported Q1 FY26 revenue growth and improved operating profit, but higher provisions and weaker asset quality pulled PAT slightly lower year-on-year. The next set of results will be watched for movement in Stage-3 metrics, provision coverage, credit cost, and whether disbursement trends stabilise while maintaining margins.