India's largest private lender reported a modest 5% rise in first-quarter profit, matching analyst expectations, but its net interest margins remain well below levels seen before last year's landmark merger with its parent. Main Developments HDFC Bank posted a standalone net profit of 190.60 billion rupees ($1.98 billion) for the quarter ending June 30, up from 181.5 billion rupees a year earlier. Analysts had forecast 191.9 billion rupees, according to LSEG data. Loan growth accelerated, with advances rising 15.4% year-on-year, driven primarily by retail loans including mortgages and personal debt. Total deposits grew 13.3%, while net interest income—the difference between interest earned and paid—rose 6.7% to 335.3 billion rupees. Read also: 3 Drivers Behind Yes Bank's 34% Profit Surge in Q1 Provisions for bad loans fell sharply, dropping 78% year-on-year to 30.6 billion rupees. However, gross non-performing loans as a share of total loans edged up slightly to 1.17% from 1.15% in the previous quarter. Background The bank has been under heightened investor scrutiny since part-time chair Atanu Chakraborty resigned in March, citing ethical differences. A legal review of the matter found no evidence to support his concerns. HDFC Bank completed its $40 billion merger with parent HDFC in 2023, a deal analysts have watched closely for signs of margin improvement. Net interest margin held steady at 3.26% this quarter, still far below the 4% level recorded before the merger. The bank appointed former bureaucrat Rajiv Kumar as chairman last month but has yet to file an application for reappointing CEO Sashidhar Jagdishan. Why It Matters The margin stagnation signals that the massive merger has yet to deliver the expected profit efficiency gains. Rising bond yields and the Indian central bank's curbs on forex options have also hurt treasury income, which fell 41% quarter-on-quarter to 128.21 billion rupees. On the positive side, Indian banks have seen a pickup in loan demand since April, with personal credit, gold loans, and small-business borrowing rising—the latter partly supported by government default guarantees amid disruptions from the Iran war. What's Next Analysts will watch closely for margin improvement as a key indicator of merger success. The bank's next steps on CEO reappointment remain pending, and the board's leadership transition is still unfolding following Chakraborty's resignation.