HDB Financial Q3 Profit Jumps 36% to ₹644 Crore in FY26

Introduction

HDB Financial Services Ltd, the non-banking financial arm of HDFC Bank, announced a strong performance for the third quarter of fiscal year 2026. On January 14, the company reported a 36.3% year-on-year (YoY) surge in its net profit, reaching ₹644 crore for the quarter ending December 31, 2025. This significant growth, up from ₹472 crore in the corresponding period of the previous year, was primarily fueled by robust growth in net interest income and a steady expansion of its loan portfolio. The results mark a positive turn for the company, which is in its third quarter since its public listing and had previously faced challenges with elevated bad loans.

Robust Growth in Earnings and Revenue

The company's financial statements revealed a healthy increase in core earnings. Net Interest Income (NII) for the quarter rose by 22.1% YoY to ₹2,285 crore, compared to ₹1,872 crore in Q3 FY25. This improvement was supported by a 12.2% growth in gross loans and an expansion in Net Interest Margin (NIM), which improved to 8.1% from 7.5% a year earlier. The company's total revenue from operations also saw a significant uptick, growing nearly 13% to ₹4,673.5 crore from ₹4,143.6 crore in the same quarter last year. Sequentially, the net profit grew by approximately 11% from ₹581.4 crore reported in the second quarter of FY26.

Expansion of Loan Book and AUM

HDB Financial Services continued to expand its business footprint, as reflected in the growth of its assets. The company's Assets Under Management (AUM) grew by 12% YoY, reaching ₹1,14,853 crore as of December 31, 2025, up from ₹1,02,514 crore a year ago. In line with this, the total gross loan portfolio stood at ₹1,14,577 crore, marking a 12.2% increase from ₹1,02,097 crore in the prior year. This steady growth in the loan book underscores the company's ability to expand its lending operations across its network of over 1,747 branches.

A Closer Look at Asset Quality

While the profitability metrics were strong, the company's asset quality showed signs of weakening. Gross Stage 3 loans, which represent non-performing assets, increased to 2.81% of the total loan book as of December 2025, compared to 2.25% in the same period a year earlier. Similarly, Net Stage 3 loans rose to 1.25% from 0.90% YoY. Furthermore, the provision coverage on these stressed assets declined to 55.59% from 60.02% in the year-ago quarter. This indicates a modest reduction in the financial buffer set aside to cover potential loan defaults, a metric that investors will likely monitor closely.

Key Financial Highlights for Q3 FY26

Operational Performance and Expenses

The company's operational efficiency remained strong. Pre-provisioning operating profit (PPOP) for the quarter grew by 23.2% YoY to ₹1,573 crore. However, total expenses also increased by around 9% to ₹3,813.2 crore. A notable item in the expenses was a one-time provision of ₹61 crore related to employee benefits under the new labour codes. Loan losses and provisions for the quarter stood at ₹712 crore, up 12% from ₹636 crore in the corresponding quarter last year, reflecting the growth in the loan book and the slight uptick in stressed assets. Despite higher provisions, the profit before tax rose by a healthy 34.3% to ₹860 crore.

Market Reaction and Outlook

The financial results were announced after market hours. On January 14, shares of HDB Financial Services Ltd closed at ₹763.45 on the BSE, down 0.59% from the previous close. The strong profit growth marks a significant recovery for the company, which had reported profit declines in the two preceding quarters due to asset quality pressures. The improvement in NII and margins indicates a strengthening of its core operations. However, the deterioration in asset quality remains a key concern. The management's strategy for containing non-performing assets while sustaining loan growth will be critical for its future performance.

Conclusion

HDB Financial Services delivered a robust financial performance in the third quarter of FY26, with a significant 36% jump in net profit driven by strong NII and loan portfolio expansion. The results signal a positive turnaround after a challenging period post-listing. While the growth metrics are encouraging, the slight weakening in asset quality, evidenced by higher Stage 3 loans and lower provision coverage, warrants careful monitoring. Going forward, the company's ability to balance growth with prudent risk management will be crucial in maintaining its performance trajectory.