HDFC, Kotak Face The Same Growth Test, With Different Risks

The appointment of Anup Bagchi at HDFC Bank and Anup Kumar Saha at Kotak Mahindra Bank puts two of India's largest private-sector lenders under new leadership at an important point in their growth cycles.

Both banks need to expand faster but their latest numbers suggest that the harder task will be achieving that growth without paying too high a price through weaker margins, costlier deposits or lower returns.

The similarity ends there as HDFC Bank's biggest challenge is rebuilding its low-cost deposit franchise, while Kotak needs to put its substantial capital base to more productive use.

HDFC's Growth Coming At Higher Funding Cost

HDFC Bank is growing its loan book at a healthy pace, but its deposit mix is making that growth more expensive. In Q1FY27, the bank’s gross advances rose 15.4% year-on-year to ₹30.60 lakh crore, while deposits grew 14.7% to ₹31.70 lakh crore, according to the bank’s results.

However, low-cost CASA deposits grew much more slowly, at 9.4% to ₹10.25 lakh crore, while higher-cost time deposits increased 17.4% to ₹21.46 lakh crore. As a result, CASA ratio accounted for only 32.3% of total deposits.

This matters because CASA deposits, which include current and savings accounts, generally cost banks less than term deposits. When a larger share of deposits comes from term deposits, banks have to pay more to raise the money they use for lending. That can put pressure on the difference between what a bank earns on loans and what it pays for funds — its net interest margin, or NIM.

HDFC Bank’s NIM fell to 3.26% in Q1FY27 from 3.38% in the previous quarter. The bank said the decline was driven by a fall in the yield on assets, while its cost of funds remained unchanged.

For incoming CEO Anup Bagchi, therefore, the challenge is not simply to grow loans and deposits, but to improve the quality of that deposit growth by bringing in more low-cost retail deposits.

The problem is not a lack of loan growth as retail advances grew 7.2% during the quarter, while the small and mid-market enterprise segment expanded 18.7%, according to the bank's results.

The challenge for Bagchi will be to make the balance sheet grow without allowing the cost of mobilising deposits to further squeeze margins.

Kotak Needs Capital's Conversion Into Higher Returns

Kotak enters the transition with a different set of numbers. Its deposits stood at ₹5.72 lakh crore in Q1FY27, up 12% year-on-year, while net advances rose 15% to ₹5.12 lakh crore. Its CASA ratio was 40.3% and NIM stood at 4.53%, according to the bank's official results.

The stronger CASA ratio gives Kotak a different funding starting point from HDFC Bank. But the bank still needs to make its balance sheet work harder. Its annualised ROE was 11.98% in Q1FY27, while CET1 stood at 22.6%.

The numbers show why faster growth is important for incoming CEO Anup Kumar Saha. The bank has sufficient capital to support expansion, but that capital needs to be deployed into loans and other assets that generate stronger returns.

Macquarie Capital's Suresh Ganapathy identified faster balance-sheet growth as a key priority for Saha. "The single biggest priority is to drive up loan growth and deposit growth. Kotak's ROE is the lowest amongst its large peers, and the only way to improve that is to consume more capital and drive up leverage through faster balance sheet growth," he said, as per a report by Mint.

The challenge is to achieve that growth without compromising the bank’s conservative approach to risk. Kotak’s gross NPA stood at 1.18% in Q1FY27, while net NPA was 0.27%, both lower than a year earlier.

For Saha, therefore, the task is not simply to lend more, but to put the bank’s excess capital to work while maintaining asset quality.

The Cost Of Growth Will Test Both CEOs

The numbers point to two different versions of the same problem. The two banks are entering their leadership transitions with different priorities, but both face a similar question: how to grow without weakening the economics of that growth.

For Anup Bagchi, the immediate challenge at HDFC Bank is to rebuild the low-cost deposit base and protect margins as the bank expands its loan book.

For Anup Kumar Saha, the task at Kotak is to accelerate loans and deposits and make better use of its strong capital position, while maintaining its focus on credit quality.

That makes growth more than a question of size as HDFC Bank needs growth that does not rely excessively on higher-cost deposits, while Kotak needs growth that translates into better returns on capital.

The real test for both new CEOs will be whether they can make their banks grow faster without allowing the cost of that growth to overwhelm the benefits.