HDFC Bank- we understand your world

HDFC Being an NBFC only had term and bulk deposits, no CASA. So post merger, CASA as combined % of deposits has gone down.


Also in current high interest rate environment people are moving funds from CASA to time deposits

Term deposits are not part of CASA

Thanks for correcting me! So in that case, HDFC bank’s cost of fund should go up in future as there are going retail term deposit are growing at around 30% pa.



While EPS growth has slowed from 28%+ to just around 11% pre to post merger
June 2022-June 2023 to Sept 2022-Sept2023

The P/B ratio has fallen only from 3.8 to 3

Can we infer that more fall in share price will not be too much…

What could be the next support now that its continuously trading below the 50 and 200 DMAs…


Wasn’t sure which thread this would fit under, here goes.

“Certain components of personal loans are recording very high growth. These are being closely monitored by the RBI for any signs of incipient stress. Banks and NBFCs would be well advised to strengthen their internal surveillance mechanisms, address the build-up of risks, if any, and institute suitable safeguards in their own interest,” said Governor Shaktikanta Das in his statement, adding that robust risk management and stronger underwriting standards are the “need of the hour”.


Though these warnings look good prima facie, the actual implementation matters more.

We have seen that, Assets of large PSU Banks turning bad after such high loan growth periods, and probably Central Bank does not act proactively in such cases. PSU Banks have seen their GNPA(s) rising beyond manageable limits in the past decade.

Central Banks should be more careful about PSU Banks rather than Private Banks which are more cautious in lending practices.

Hope that, this time, Central Banks will be firm in their approach.


I liked the fact that, HDFC Bank is expanding rapidly in cities as well as Rural areas where other large private banks do not have a presense.
In fact, when ever you visit remote rural areas, mostly you will see SBI every where. If HDFC bank can replicate SBI kind of branches in rural areas, it may still able to grow at decent 15% to 20% Book value for next 5-6 years.
In the past as well, Many analysts have been pessimistic about its growth but it has surprised all by steady above 20% Book Value growth for 30+ years.

Let use see what happens in next decade. Competition from FINTECH is definitely going to impact its growth to some extent as compared to past 30+ years.

Disclosure : Invested since 2011. Booked profits from time to time, but keep investing after deep corrections.


This indeed could be where the next growth lever exists for the Indian banking sector as a whole as income levels rise over this decade and the streets could well be underestimating that. But I do feel HDFC and other lead private sector banks realize this.

I believe it is due to the inertia of human sentiments and thus has more to do with behavioural finance than the numbers themselves. But for those who are bullish on the bank, the current valuations do indeed look attractive.

Disc - Invested and biased


I’m invested in hdfc bank but now i have started to look into peers which are of same size or bigger compared to hdfc after merger.

hdfc trades at a valution of 16 pe ratio and p/b ratio of under 3 which historically is the lowest it has been for the bank but once we start comparing it the likes of citi group and bank of america which both trades at valution of 7 pe and almost 4% dividend yield which makes them significantly cheaper than hdfc bank.

Can someone please explain to me the logic of paying such a significant premium to an indian bank ,i know we are a developing nation but the bank is already to big and i doubt it will grow at the same pace it has been growing the past few decades the growth in eps is to early to tell but it has been rangebound for the past 1 year.


There is recession fears in US plus Indian economy is strong and growth is still expected. Credit quality in US is about to worsen due to historically high interest rates.

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Due to growth factor indian market is always costly, you can’t compare international peer with indian one. Forget about same sector, you should not compare even parent company.

Like uniliver PE is 14 where as HUL is 57
Dominos PE is 24 whereas Jubilant is 140 - likewise.


Growth of a bank is very much linked to the growth rate of the economy. By no means we can compare a bank present in a developed economy VS ours which is still growing at a much faster pace. Hence I believe the difference in the valuation is justified. There is still a lot more room to grow for Indian banks and just because size of the book is large does the stop the bank in anyway in capturing the market further.


There’s a couple of items that lead to the valuation difference.

  1. Underlying operations - Indian banks do very little risky businesses around collateralisation and securitization. Investment Banking and Trading operations are smaller scale and take very little risk.

  2. Differential in GDP growth and much bigger differential in credit penetration.

So lower volatility of earnings and larger potential growth - lead to higher sustainable profitable growth.

Underpenetration is also due to lower competition - leads to higher NIMs and ROAs

Also Citi is a terrible example. Mismanaged for 25 years.

Why should HDFC Bank’s cross cycle 15-20% growth and 15-20% ROE be available at 7 p/e?

If you are concerned about 15% growth being too much - at that growth rate HDFC Bank won’t even gain market share. In the last FY - HDFC Bank garnered a quarter of ALL incremental deposits in the system.


I think the pvt banking players are taking a leaf out of what FMCG guys did back in the late 1990s-2000s. Back then HUL launched a program Operation Bharat in phases to increase the penetration of their products in rural India. At the time 70% of the revenues were coming from the urban areas. But rural markets were growing at thrice the speed of urban markets. Now we know how those efforts paid off for the FMCG companies. Something similar may be anticipated in the banking space also. Rapid and deep digitization could be a cause for worry. A news article I pulled from 2000 discusses the same.


I agree with your concern and had similar thoughts about HDFC Bank. Citi and BoFA both are most likely to outperform HDFC Bank shares going forward especially when returns are measured in dollars.
Banks in US such as Citi, BoFA and bunch of others are trading at very low valuation due to recession fears and other factors but once these clouds clear they can deliver 30-50% return in short time.

Premium valuations for HDFC and other Indian banks will be in question as economy opens up more leading to more competition and these big banks get compared to global peers. HDFC bank’s return for last 5 years haven’t been that great especially when compared in the terms of dollar.

High multiple stocks in India will be in question once compared to similar global companies. Investor can make good money when multiple expansions is combined with rising profits but stagnating profits or even slowly increasing profits can lead to multiple compression.

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Couple of points because to which HDFC is not apples to apples with Citi and likes:

  1. Citi is pretty much a global financial institution unlike HDFC. It is exposed to multiple country specific risks. In bad times, Citi is more vulnerable I feel.
  2. Citi also would have more risky operations (which we saw during GFC what these FIs are involved in), which HDFC is generally not involved.
  3. Citi also would have investment banking operations which HDFC is not involved in.

So while due to the size HDFC will get compared to the global giants, however I feel there are significant differences in businesses and hence valuations should be different.

Having said the above, I feel we should not be anchored to the historical valuations of HDFC Bank and expect that there will be mean reversion. Going forward the average valuations could reduce.

Disc: invested


I agree with @Ketan_Chheda
I don’t see any reason why are we even comparing banks of a fully developed country (which is on the edge of recession) with a bank of a growing country where recession chances are almost zero.

Pardon me in advance, if I go by this logic, I won’t be able to invest in India as almost everything is expensive if compared to their peers in foreign developed countries :sweat_smile:

Even if we compare HDFC with foreign banks, it indirectly means HDFC will have more space to grow in other countries.

Last 5 years avg PE of HDFC is 23.7 but currently, it is at its lowest PE i.e 16.8. It means profit has grown a lot but the price is not moving. We might see something close to the next ITC here.

Disc: Invested


Unfortunately this is the harsh reality to me eyerthing in india seems expensive and all time high interest rates doesn’t help either .

I know i might loose money not buying stocks at current valuation but i’m ok with the letting go of the fear of missing out ,i would rather not loose money if there is any change in theme of india being the next growth story or the next china or for whatever reason our markets are so expensive at the current moment(I have burned money in the speciality chemical cycle and china plus1 theory which was going on during covid)

I’m invested in hdfc bank but i would not feel comfortable holding as a long term bet as any meltdown within finanial market will have a effect on hdfc bank as well as most of the holding is by FII.

While we can compare HDFC Bank with Global peers, we may also have to consider reasons behind the low valuations of Global peers:

  1. Very low GDP growth in the past decade. Even though this is on high base, but still recession fears were there during this period where as in India, at least recession fears may not be there.
  2. Per Capita Income in India is one of the lowest in the world (around 2100 USD) which is lower than Asian peers. Though this is Negative but at least it may not go down further. In fact it may go up in next 30+ years and thus Financial investments may go up. Lot of efforts will be required at an individual level to uplift large population out of poverty and also to ensure that Per Capita Income should at least become comparable with Asian peers. Only then Banks can grow, along with MF(s).
    I am particularly worried about this very low Per Capita Income in India and I believe that, large amount of efforts are needed at an individual level to lift our income ahead of Asian Peers. When income goes up, only then Banks will grow faster than Global peers.
  3. Risk taken by Global banks might be higher due to their exposure across the world, which may not be case with HDFC Bank. This may change in future as they may like to expand outside India.

Though there are lot of Negative factors which may ensure that, HDFC Bank will find it difficult to grow beyond 15% but still this growth rate looks good. There have been negative views about HDFC Bank during my investment from 2011 but almost all the time, it has surprised investors positively. Let us see what happens in next decade.

Views could be biased as invested in HDFC Bank.