While the bank’s focus on the retail customer has led this segment to account for 51% of its loan book, growth was faster in the corporate segment at 20%. But that is not exactly a reason to cheer because it was mostly working capital demand and loans to small and medium enterprises—a segment susceptible to bad loans. Even in the retail segment, unsecured loans such as personal loans and credit cards are growing at a robust pace, confirming that this is an environment with fewer growth opportunities for lenders.

Paresh Sukthankar, HDFC Bank’s deputy managing director, said there is very little capital expenditure happening currently. The bank is hoping for a pick-up in core credit growth in the next two to three quarters, led by investment demand.

Although loan growth is coming from riskier segments, HDFC Bank continues to put up an impeccable performance in bad loans’ management. Gross non-performing assets continued to remain among the lowest in the industry at 1% of the loan book.

Still, since more than half its loan book is made of retail assets which are small ticket-sized, operating costs tend to inch up. Deposit growth also slowed to 18.6% from a year ago with current and savings accounts mix declining to 40.9%. More customers are locked into fixed deposits as rates are expected to come down in the coming months. As a result, net interest margins dropped 10 basis points sequentially to 4.4%. One basis point is one-hundredth of a percentage point.

But HDFC Bank also benefited from treasury income gains, like other banks. As a result, non-interest income grew 31% and boosted operating profit growth to 38%, the highest in four years.

Despite the economic slowdown, HDFC Bank has shown strong return on assets of 2% (annualized) and net interest margins of close to 4.5% quarter after quarter. With its shares trading at four times one-year forward book value, a strong increase in earnings will have to come from loan book growth. While that may take some more time, the bank has taken the right step in arming itself with more capital. After raising Rs.10,000 crore earlier this month, HDFC Bank’s reserve ratio will be the highest among private banks.