**HDFC Bank Boosts Provisions Amid Rising Agricultural Loan Slippages**
HDFC Bank has increased its provisioning buffers for the quarter ending June (Q1FY26) due to a rise in slippages from agricultural loans, resulting in a slight decline in asset quality. Despite stable growth in loans and deposits during this period, the bank continues to face margin pressures, which it anticipates will persist for at least another quarter.
In this quarter, HDFC Bank recorded a one-time revenue gain of ₹9,130 crore from the initial public offering (IPO) of its subsidiary, HDB Financial Services. Provisions reached ₹1,440 crore, significantly higher than the ₹3,190 crore recorded in the previous quarter and ₹2,600 crore in the same period last year, impacting the bank’s bottom line. Chief Financial Officer Srinivasan Vaidyanathan stated, “We have taken this as an opportunity to enhance the contingent provision. It is not meant for any specific portfolio or anticipated risk. These are counter-cyclical buffers for making the balance sheet resilient.”
During the quarter, slippages amounted to ₹9,000 crore, with approximately ₹2,200 crore stemming from the bank’s agricultural loan portfolio. It is common for farm loan delinquencies to peak in the first and third quarters of the financial year, normalizing in the second and fourth quarters. Vaidyanathan noted that aside from the seasonal agricultural loans, slippages have remained stable across other portfolios, including retail, SME, and wholesale.
The gross non-performing asset (NPA) ratio slightly increased to 1.4% as of the end of June, compared to 1.3% in both the previous quarter and the same period last year. Net NPAs also rose to 0.5% from 0.4% in the earlier comparison periods. Gross advances grew by 6.7% year-on-year to ₹26.5 trillion as of June 30, driven by an 8.1% increase in retail loans, a 17.1% rise in SME loans, and a 1.7% increase in corporate and wholesale loans. Overseas loans constituted 1.7% of total advances.
While industry-wide credit growth has slowed to around 9-10%, Vaidyanathan emphasized that HDFC Bank remains committed to expanding its credit book. The bank is intentionally growing its loans at a slower pace than deposits to rebalance its credit-deposit (CD) ratio, which was affected by the merger with its former parent, HDFC Ltd. HDFC Bank previously indicated that although its loan growth lagged behind the industry in FY25, it expects to align with sector growth in FY26 and surpass it from FY27 onward, ultimately regaining market share.
Vaidyanathan highlighted that the bank is experiencing broad-based growth across retail and consumer segments, which will continue to be a focal point, as consumption accounts for 60% of India’s GDP. He noted, “Both monetary policy and fiscal policy implications are there to support credit growth, and we do expect that to pick up momentum, both in consumption spending and credit growth with the festival cycle beginning. So, we’ll have to wait and see.”
**FAQ**
**What factors contributed to HDFC Bank’s increased provisions in Q1FY26?**
HDFC Bank increased its provisions due to a rise in slippages from agricultural loans, which typically spike in the first and third quarters of the financial year, alongside ongoing margin pressures.
