Ego trips or turnaround drips

At the last analysts’ call, after the sensational resignation by the former chairman, Atanu Chakraborty, which was attended by the part-time new chairman, the legendary Keki Mistry, the focus was on the post-resignation repercussions. According to a report by Emkay Global Financial, HDFC Bank attributed Chakraborty’s exit largely to interpersonal issues. It categorically denied governance or regulatory issues. One of the regulators, the Reserve Bank of India (RBI) took the same view. “Mistry… indicated that he would not have accepted the role at the age of 71 if there were any integrity or governance issues… which we believe is comforting,” states the brokerage house’s report.

However, investors may not fully agree. Over the past six months, the stock price has dipped by INR 200, or more than 20 per cent, although it went up yesterday by nearly three per cent, after weeks of turmoil, doom, crash, and recoil. Indeed, research reports contend that the bank has struggled with the transition among the top management that began in October 2020, followed by the suspension of its credit card business by the RB, and the merger with HDFC Ltd, which hurt its growth and margin trajectories. Hence, everything depends on the turnaround plan that was chalked by the merged entity.

Obviously, it is imperative for the bank to establish that the strategic plan was on track. “The management has exhibited confidence in the growth and margin recovery, aided by easing regulatory pressures and a pause in the rate cycle. It reiterated in the analyst call that recent… exits will not derail the turnaround, while indicating a potential organisational rejig,” notes the Emkay’s report. However, the problems with the Dubai branch related to mis-selling of bonds, sacking of several executives, and the chairman’s resignation do not bode well. Hence, the eyes will be on the bank’s next few quarters, and next board meeting.

“The improved operating performance in the coming year will be critical to the stock performance. The swift regulatory engagement and interim leadership appointment do provide comfort on operational continuity,” highlights another report by Motilal Oswal. Implicit in the wordings are some warnings. Financials need to improve in the future. The interim measures provide comfort, but need to be followed up efficiently. One will need to see the impact of the Sebi investigations, although the central bank seems to have given a clean chit without major probes.

According to the exchange filings, the bank’s Q4-26 results indicate that the average advances under management reached INR 29.64 lakh crore, or an approximate 10 per cent increase over the figure in the same period the previous year. On the liabilities side, the bank’s average deposits reached INR 28.51 lakh crore in the quarter ending March 2026, marking a growth of 12.8 per cent during the same period last year. In this context, the average CASA deposits stood at INR 9.18 lakh crore, reflecting a rise of 10.8 per cent compared to INR 8.29 lakh crore.

The average time deposits reached INR 19.33 lakh crore, experiencing a growth of 13.7 per cent from INR 16.99 lakh crore. As of March 31, 2026, the bank’s total deposits were INR 31.06 lakh crore, marking an increase of 14.4 per cent from INR 27.15 lakh crore the previous year. At the end of the period, CASA deposits were about INR 10.61 lakh crore, reflecting a 12.3 per cent increase from INR 9.45 lakh crore a year earlier. The time deposits rose to INR 20.45 lakh crore, marking a stronger growth of 15.5 per cent compared to INR 17.70 lakh crore as of March 31, 2025.

“We maintain our earnings estimates, and expect Return on Assets and Return on Equity at 1.9 per cent, and 14.5 per cent, respectively, by FY27E. We retain our BUY rating with a Target Price (TP) of INR 1,100… along with an additional INR 137 per share attributed to the bank’s subsidiaries,” notes the Motilal Oswal report. Emkay’s predictions are similar, with a target price of INR 1,225. “However, we believe HDFCB needs to rebuild leadership strength and soon clarify on the current MD’s term extension beyond Oct-26, along with the appointment of a credible long-tenure Chairman, which may otherwise remain a drag on the stock in the near term,” it warns.

But the final price movements will depend on how the bank deals with the ongoing HR, operational, merger, and profit issues. Ongoing compliance problems include the ban on Dubai branch, and fines for multiple loan benchmarks, and outsourcing KYC processes. The impact of the merger seems to hang over the bank like a sword. It created complexities, and led to the pressures on margins. “The bank’s net interest margins have decreased from 4.1 per cent pre-merger to 3.3-3.5 per cent in early-2026,” explains an analysis via AI tool. The recent resignation has muddied the governance waters, along with financial ones.

The fact remains that the $10-billion merger was described as a “merger of equals,” with the objective that big is better. In 2023, it created a combined entity with an asset base of INR 18 lakh crore. But there were problems in operations. “Two key metrics that the market closely tracks, loan growth and net interest margin, came under immediate pressure. The absorption of HDFC’s large mortgage book, which carries lower yields, structurally altered the bank’s margin profile. Furthermore, the bank’s credit-to-deposit ratio surged past 100 per cent, signalling that loan growth was outpacing deposit…. This forced the bank to rely on more expensive market borrowings, further squeezing profitability, and raising concerns,” states an analysis.

Hence, the premium stock valuation vanished. Historically known for high net margins of over four per cent, investors had to contend with 3.5 per cent. The race for deposits implied new challenges. This demolished its premium positioning. Thus, the bank, which commanded a premium valuation over its peers in the stock market, saw this advantage eroded, as competitors “demonstrated consistent performance,” traded at higher multiples, and displaced HDFC Bank from the leadership position.

Thus, according to an analysis, “HDFC Bank is navigating a complex and challenging transition. The strategic vision of the merger remains intact, but the path to realising its full potential is proving to be longer, and more arduous than initially anticipated. The bank’s ability to accelerate deposit growth to fund its loan book profitably will be the ultimate determinant for success. While the Q3 (and Q4) performance shows that the operational engine is firing, the stock’s recovery hinges on the management’s ability to restore confidence.”