The analysis notebook · Day 03
How does HDFC Bank
make money?
A savings account is only one side of the story. The business is about earning from money, services and risk - while paying for all three.
AYUSH RAJ · 9 OCTOBER 2026 · COMPANY ANALYSIS
The simple answer: interest is the engine. Fees and other income add to it. Costs, credit losses and tax decide what stays.
01 / The business model
Follow the money.
Banks accept deposits and use funding to make loans and hold investments. Deposits are money the bank owes customers, not revenue. A loan repayment includes principal coming back; that principal is not new income either.
FUNDINGDeposits & borrowingsThe bank pays interest on much of this funding.
EARNING ASSETSLoans & investmentsThese earn interest and other returns.
THE DIFFERENCENet interest incomeInterest earned minus interest paid.
02 / Four ways to understand income
More than the lending spread.
01
Interest income
HDFC Bank earns interest on home loans, personal loans, business loans and other advances. It also earns interest on investments. But the full interest collected is not its profit: it pays interest on deposits and borrowings.
Net interest income (NII) is interest earned minus interest expended. Net interest margin (NIM) expresses that net interest income relative to an asset base, usually annualised.
Illustration only: lend ₹100 at 10% and fund it at 6%. The ₹4 yearly difference comes before staff costs, loan losses and tax. This simplified spread is not the bank's reported NIM.
Q1 FY27 NIM: 3.26% on total assets; 3.40% on interest-earning assets. The denominator matters.
02
Fees & commissions
Not every rupee needs a loan behind it. Payment services, cards, banking transactions and distribution of financial products can earn fees or commissions.
For the June 2026 quarter, HDFC Bank reported ₹8,450 crore in fees and commissions. That is part of non-interest income, not NII.
03
Investments & treasury
The bank holds investments such as bonds. Interest from investments sits inside interest earned. Trading and mark-to-market gains sit in other income, and can change with markets.
Q1 FY27 income on investments was ₹14,272.21 crore. Net trading and mark-to-market gains were about ₹420 crore.
Do not add investment interest to NII again: it is already included in interest earned before funding costs.
04
Forex & other services
Currency exchange and derivatives are another source of income, including services used by customers managing cross-border payments and currency risk.
Foreign exchange and derivatives revenue was about ₹1,300 crore in Q1 FY27. Miscellaneous income, including recoveries and dividends, added about ₹2,660 crore.
These four explanations are a learning framework, not four separate accounting buckets that can simply be added together.
03 / The numbers
A snapshot, not a stock tip.
Latest published quarterly earnings available when checked on 9 October 2026: Q1 FY27, quarter ended 30 June 2026. These are standalone bank figures under Indian GAAP, not the consolidated group.
Net interest income₹33,533.95 cr6.7% year-on-year growth
Other income₹12,821.60 crFees, forex, trading & more
Net revenue₹46,355.55 crNII + other income
Profit after tax₹19,059.72 cr5.0% year-on-year growth
Cost-to-income ratio39.2%Operating costs / net revenue
Gross NPA ratio1.17%At 30 June 2026
Amounts in ₹ crore (cr). Exact amounts above come from the financial statement; percentages and rounded income components come from the official press release. ₹1 billion = ₹100 crore.
A comparison trap: the June 2025 quarter included a ₹9,130 crore gain from the partial sale of HDB Financial Services. A lower headline net revenue number does not, by itself, prove the core banking business shrank. Look at the one-off items too.
The official financial calendar schedules September-quarter earnings for the third week of October 2026. A business update is not the same as a full profit-and-loss result.
04 / Revenue is not profit
The money that stays.
The bank's total income was ₹92,184.38 crore. First subtract ₹45,828.83 crore of interest expense to get net revenue. Then there are salaries, branches, technology and other operating costs. Provisions and contingencies account for risks such as loan losses; a provision is an expense estimate, not necessarily a cash loss paid that day.
Total income₹92,184.38 cr
Less: interest expense₹45,828.83 cr
= Net revenue₹46,355.55 cr
Less: operating expenses₹18,187.49 cr
Less: provisions & contingencies₹3,059.76 cr
= Profit before tax₹25,108.30 cr
Less: tax expense₹6,048.58 cr
Profit after tax₹19,059.72 cr
Source: standalone financial results, June 2026 quarter. This bridge reconciles to the statement exactly.
05 / What I learned
Read the business before the headline.
My biggest lesson: collecting more money is not the same as keeping more money. For a bank, I need to ask what it pays for funding, what it earns from assets, and how much risk it takes to earn that income.
I am learning to read NII, fees, costs and loan quality together. A higher profit number is a starting point for questions, not the whole analysis.
A commerce student's learning notebook. Not investment advice or a recommendation to buy or sell HDFC Bank shares.