Explainer: Here is why private lenders like HDFC Bank and ICICI Bank might slow down home loan growth

On Saturday, private lending rivals HDFC Bank and ICICI Bank posted quarterly results. But more than the profit movement, the focus was on loans and credit ratios.

With a net interest margin of 3.5 per cent, HDFC Bank’s net interest income surged 10.3 per cent to ₹32,070 crore in the three-month period. During the same quarter, ICICI Bank saw its core net interest income jump 11 per cent to ₹21,193 crore, posting a net interest margin of 4.41 per cent.

However, during the earnings briefing, it was HDFC Bank CFO Srinivasan Vaidyanathan’s statement of the lender having taken a conscious call to slow down the growth in loans that took centre stage.

Stating that the bank is facing troubles with pricing, Vaidyanathan added that it has forced HDFC Bank to stay off certain loan proposals. Moreover, home loan disbursements were affected adversely during the period—by up to 20 per cent—on “intense pricing” by rivals. Home loans, which are linked to the repo rate, alone form 30 per cent of the entire HDFC credit book of ₹26.43 lakh crore.

HDFC Bank’s biggest rival and peer is ICICI Bank. In contrast, ICICI Bank has a ₹13.39 lakh crore domestic loan book, of which 53 per cent is linked to the repo rate.

The latest Monetary Policy Committee (MPC) decision to cut the repo rate twice in the same year is sure to impact both lenders. ICICI bank’s executive director Sandeep Batra said that the transmission of the repo rate changes would occur in about three months, noting that the net interest margin may be impacted by the policy rate cuts by the Reserve Bank of India’s MPC.

This means that both lenders might slow down loan growth and shift their focus to liabilities in the current fiscal. HDFC Bank cut its credit deposit ratio to 96 per cent in March and they look to bring it down to 85-90 per cent (pre-merger levels) by fiscal 2027, according the HDFC Bank CFO Vaidyanathan.

For ICICI Bank, the credit deposit ratio on the domestic balance sheet stood at 82.4 per cent as of Mar 31, 2025, almost equal to the ratio a year ago, but lower than the Dec 2024 ratio of 85.4 per cent.

With inflation slashing the prospects of new homes in the low and mid-tier price bracket, the supply crunch led to HDFC Bank’s mortgage growth falling below 8 per cent in FY2025.

ICICI Bank, on the other hand, saw credit card and personal loan growth slide and it cut back on riskier unsecured assets. While the lender attributed it to market restrictions in the overall retail credit growth, Batra stated that ICICI Bank would look at avenues to grow its credit book by adopting a “risk-adjusted” perspective.

For the common man, the latest MPC repo rate cuts have helped cut down home EMIs and linked loan rates. However, the country’s top two private lenders seem to have adopted a conservative stance on repo rate-linked loans, affecting disbursements. Their pricing is also being undercut by PSU and state-run banks.

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