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Earnings · HDFCBANK · Banks — Private

HDFC Bank — through the merger's belly, into a boardroom shock

HDFC Bank Ltd

period Q2 FY26 → Q4 FY26 added 2026-06-09 score 8/10
earnings-call banks HDFCBANK india

The Pulse

HDFC Bank is India’s largest private bank, and for the last three years it has been digesting the elephant it swallowed in July 2023 — the reverse-merger with its parent, mortgage giant HDFC Ltd. By FY26 the worst of that indigestion is behind it: loan growth re-accelerated to 12% (from a deliberately slow 5% in FY25), deposits grew 14.4%, the loan-to-deposit ratio is gliding back down toward 90%, and asset quality stayed pristine (gross NPA 1.15%). Management has explicitly changed the scorecard it wants to be judged on — away from net interest margin, toward return on assets (~1.95%) and earnings-per-share growth — and is telling the market the next few years are about harvesting the heavy investment of the merger years. Then, in March 2026, came a jolt that had nothing to do with the numbers: Chairman Atanu Chakraborty abruptly resigned, the regulator installed HDFC veteran Keki Mistry as interim chairman within hours, and the bank held a tense, defensive call trying to reassure a sceptical market. The franchise is healing; the boardroom just got interesting.

The Business

HDFC Bank earns the way every bank earns — the spread on loans over deposits, plus fees and treasury — but at a scale no Indian private peer matches: roughly ₹49 lakh crore of assets, ₹31 lakh crore of deposits, over 9,600 branches and around 100 million customers. The defining event of the modern bank is the 2023 merger that bolted HDFC Ltd’s ₹8-lakh-crore-plus mortgage book onto the bank. That deal made HDFC one of the largest home-financiers in the country, but it also handed the bank a problem: the merged entity arrived with a stretched loan-to-deposit ratio (loans had grown 55% in the merger year against deposit growth of 26%) and a chunk of expensive borrowings, because HDFC Ltd funded itself with bonds, not deposits.

So the whole strategy since has been a liability story: grow deposits faster than loans, refinance the costly merger-era borrowings (down 11% in FY26), and bring the loan-deposit ratio back to safety. What makes HDFC distinctive is the quality of that deposit machine. Management’s proudest exhibit isn’t a headline number but a granularity one: the share of net deposit accretion coming from small, sub-₹3-crore retail time deposits rose from 31% to 47% of the total. The bank’s edge is a deposit-and-distribution flywheel where it sells mortgages, auto loans and cards largely to win the customer’s liability relationship — auto loans are more than 80% self-funded by the borrower’s own deposits, and card customers carry over five times their card balance in deposits. There is no promoter — post-merger, HDFC Bank is entirely widely-held, with the float roughly split between foreign and domestic institutions.

How Management Thinks

The HDFC management mind, under CEO Sashidhar Jagdishan, is best described as profitability-over-growth and relationship-over-pricing — and unusually candid about it. When deposits “fell short of our strong ambitions” in the December quarter, the CEO said exactly that, and added that they had chosen not to chase deposits with tactical pricing because protecting the cost of funds mattered more. That is the consistent tell: HDFC will sacrifice a quarter’s optics to defend the long-term economics. They have asked, repeatedly and almost testily, to be judged on trajectory and multi-year averages rather than any single soft print — “short memories,” the CEO chided a margin-obsessed market, pointing to “our moat and our strength.”

The most important shift this cycle is a deliberate reframing of the scorecard. Management is steering the market’s attention away from net interest margin and the loan-deposit ratio — which it argues are partly out of its hands and not regulatory constraints — and toward ROA feeding into EPS growth. Capital allocation is conservative to a fault: a fortress capital ratio near 20% (CET-1), a ~125 bps contingency buffer, and a stated intent to harvest operating leverage from five-to-six years of technology and branch investment rather than spend into growth. They’ve floated, lightly, the idea of a buyback to “delight shareholders” given excess capital — but remain sceptical that regulators will give them capital relief, and there is no buyback on the table yet. The subsidiary value is real and being surfaced: HDB Financial Services was taken public, and a board committee chaired by Keki Mistry was set up specifically to evaluate monetising the subsidiaries.

Then there is the governance shock, which tests management’s credibility in a different way. The March 2026 resignation of Chairman Chakraborty — reportedly with pointed, ethics-flavoured language — produced a damage-control call where the board admitted it had asked him directly for a reason and received none (“baffling,” “defies logic”). Management leaned almost entirely on the speed of RBI’s approval of an interim chairman as proof of regulatory comfort, while deflecting nearly every substantive question (a deputy MD at the centre of market rumours was conspicuously absent, cited as a routine health check-up). The candour HDFC shows on its numbers did not extend to the boardroom; on that front, the posture was containment. It is the one place where the otherwise-clean credibility picture has a genuine asterisk.

Where It’s Going

The operating trajectory is one of normalisation turning into modest re-acceleration. Management guides loan growth in line with the banking system in FY26 (system growth itself picked up to ~13–14%) and roughly 200 bps above system in FY27, as the merger drag fully clears. The loan-deposit ratio is guided down to ~90% in FY26 and 85–90% in FY27. Net interest margin is described as “range-bound” — HDFC’s longer-duration retail liabilities reprice slowly (over ~6 quarters), so its cost of funds has lagged peers on the way down, a margin asymmetry management openly concedes. The bet is that operating leverage and AI (five use-cases live, fourteen in development) lift ROA over the next one-to-three years even if margins don’t expand.

The tensions are real and worth naming. The merger is not fully metabolised — the cost-of-funds normalisation has a multi-quarter tail. The margin story is structurally less exciting than peers who reprice faster. And the governance overhang is genuine: an unexplained chairman exit, social-media allegations the board described a process around but disclosed no findings on, and a CEO reappointment due in roughly seven months that the nomination committee must now navigate against that backdrop. None of it has shown up in the credit numbers — but it is the kind of uncertainty that a premium franchise is normally not supposed to carry.

The Four Checks

  1. Quality & moat (gate). Yes — a genuinely good business with a deep moat. The advantage is the largest and stickiest low-cost deposit franchise in Indian private banking, paired with conservative underwriting that kept gross NPAs at 1.15% straight through a transformational merger. The deposit flywheel — winning liability relationships through asset products — is structurally hard to replicate, and scale (100m customers, >11% deposit-market share) compounds it.

  2. Returns on incremental capital & runway. Solid but currently muted. ROA is ~1.95% and ROE has compressed from ~17% pre-merger (FY23) to ~14% as the larger, lower-margin merged balance sheet diluted returns. The harvest thesis is precisely the claim that incremental returns rise from here as operating leverage kicks in. The runway is enormous — India’s under-penetrated mortgage and deposit markets, and a bank big enough to grow with the system almost indefinitely — but the recent level of incremental return is the thing the bull case needs to see improve.

  3. Capital allocation for the stage. Rational, with one watch-item. Reinvesting through the merger digestion, refinancing costly borrowings, surfacing subsidiary value (HDB IPO), and holding a fortress buffer are all defensible for a bank in this phase. The honest gap: capital is now arguably excess (CET-1 ~20%), management itself raised the buyback idea, and yet no return-of-capital has been committed. If the harvest genuinely lifts ROA, retention is fine; if growth stays system-level and capital keeps building, the case for a buyback strengthens — that’s the allocation test ahead.

  4. Price. Reasonable-to-undemanding by HDFC’s own history — which is itself notable. At ₹738 the stock sits near its 52-week low (range ₹727–1,020), trading at roughly 15 times earnings and about 1.95 times book. For a franchise of this quality earning ~14% ROE, that is a more modest multiple than HDFC commanded for most of the past decade. The market is plainly pricing in the merger’s margin dilution, the muted near-term growth, and now a dose of governance uncertainty. Whether that’s an opportunity or a fair discount turns on the harvest thesis delivering and the boardroom settling — but the price is not making heroic assumptions.

Sources

  • Concall transcripts read: Q2 FY26 (Oct 2025), Q3 FY26 (Jan 2026), the March 19 2026 governance/chairman-resignation call, and Q4 FY26 (Apr 2026).
  • Annual reports read: FY25, FY24, FY23 (trimmed high-signal sections).
  • Snapshot: screener.in consolidated, fetched 2026-06-09 (logged-out public session).
  • Gaps / caveats: Several HDFC calls are Q&A-led and did not recite headline figures verbatim (absolute PAT, NII, exact NIM and CASA were referenced “in the deck” rather than spoken), so figures above are drawn from what management quantified on the calls plus the snapshot; the snapshot itself does not populate NIM/CASA/NNPA fields for HDFC. The March 2026 transcript is a governance call, not an earnings call, and carries no financials. The FY23 annual-report trim was thin (largely director bios), so the pre-merger AR baseline is limited. The ~₹5bn agri and ~₹8bn labour-code items in the Dec quarter are management estimates. Full research dumps in vault/Sources/Earnings/HDFC Bank Ltd/.