Per this Moneycontrol article difference between CEO and chairman was the reason behind chairman’s exit:
Sucheta Dalal’s article on the HDFC inbroglio.
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HDFC Bank is currently facing three key overhangs, but all of them look more transitional than structural. First, the AT1 bond mis-selling episode is largely a reputational issue, it hasn’t impacted capital, asset quality, or the core earnings engine.
Second, the post-merger integration with HDFC Ltd has temporarily compressed margins due to the addition of a lower-yield mortgage book and higher-cost borrowings. This has affected NIM and return ratios, but it’s a known, one-time adjustment as the balance sheet gets optimized.
Third, and most important, is the loan growth outpacing deposit growth, pushing the credit-deposit ratio higher and increasing reliance on expensive funding, this is the only issue that truly matters from a long-term perspective.
From a Warren Buffett-style lens, the key question is whether these problems impair the bank’s long-term earning power or just create short-term noise. So far, it clearly looks like the latter.
Deposit growth has already started improving, loan growth has been consciously moderated, and management is focused on bringing the balance back to a healthier range over the next couple of years.
The core moat strong deposit franchise, distribution reach, and disciplined underwriting remains intact. In the context of the current Indian market, this appears to be a classic case of a high-quality compounding business going through temporary dislocation. If execution holds, HDFC Bank is likely to come out stronger, making these issues short-term headwinds rather than red flags.
Coming to the valuations
Key Inputs:
Net Income: ₹70,792 Cr
Shares: 1530 Cr
Book Value/Share: ₹682
ROE (7-year avg): 14.86%
Assumptions:
Growth (Years 1–5): 10%
Growth (Years 6–10): 8%
Terminal Growth: 4%
Discount Rate: 12%
Core Logic:
Banks reinvest heavily, so Owner Earnings = Net Income × (1 − Growth/ROE)
Reinvestment needed ≈ 67%
Owner Earnings ≈ ₹23,000 Cr
Intrinsic Value = ₹680 – ₹900 per share
Current Price ≈ ₹800
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some questions to think on
- whats the major reasons for slower depisit growth?
- Is slower deposit growth across the sector or any other largr bank outperforming by decent margin in this growth?
- As you mentioned, consciously moderating loan growth to possibly pritect margins…is this the best strategy? or should lower margins would have been fine with better loan growth, provided that growth is within the merits of the underwriting skill of the bank? I do not understand if with same underwriting parameters, loan growth can be better then why to let it go to protect margins if we are confident to improve deposit growth over medium term?
- Regarding reputation hit, I think all banks are hit with some issues or another from time to time. What matters most is trust of customers, specially Indian customers of the bank. Hope that is intact and with my limited understanding I feel that is intact.
Views invited
Disc: Not invested yet in hdfc bank but invested in other hdfc group companies. Not a buy/sell recommendation. Not eligible for any advice.
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Deposit growth has become slower mainly because people now have many more options for their savings. Earlier, most money would stay in bank accounts or FDs, but now a lot is going into mutual funds, stocks, gold, and property. For HDFC Bank, the challenge is even bigger because it has become such a large bank that even maintaining the same growth rate needs huge amounts of fresh deposits. The merger made this more visible because the balance sheet became much bigger overnight, when it merged with the sudden huge home loan book, more assets to fund. So: the need for deposits increased sharply.
This is not just an HDFC issue. The whole banking sector is seeing slower deposit growth because competition for deposits has increased. The difference is that HDFC’s merger made the gap between loans and deposits more obvious. Other large banks like ICICI Bank and Kotak Mahindra Bank look relatively better because they did not have this merger-related pressure.
South Indian Bank: loans +15.7%, deposits +14.7%
Karur Vysya: loans +16.9%, deposits +13.3%
Tamilnad Mercantile: loans +20.3%, deposits +14.9%
RBI data shows deposits are growing slower across the system
In FY25:
Bank deposits grew only 10.6%
vs 13% growth in FY24
Yes, in the current situation it makes sense. A bank can only grow safely if it has enough low-cost deposits to support that growth. If HDFC keeps growing loans aggressively without matching deposits, it will have to rely more on expensive borrowing, which will hurt margins and increase risk. It is better to slow down for a while, strengthen the balance sheet, and then grow again, rather than stretch too much now.
the moment, there is no major sign that customer trust has been damaged. Deposits are still growing, people are still using the bank, and its core strengths trust, reach, and underwriting discipline are still intact. So this looks more like short-term market concern after a large merger, rather than any serious damage to the business
RBI publicly said there are no material governance concerns on record
After chairman Atanu Chakraborty resigned: HDFC is a systemically important bank, it has sound financials, no material concerns on record regarding conduct or governance
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Add to this competetion from newer banks and couple psus becoming better. I think this is a post covid retail investor awareness theme which will not change anywhere in medium term to long term. I see it changing materially only when these enlightened people either retire or gain financial freedom (or closer to it). I maybe wrong. Still, what it tells me that loan growth moderation is structural and not mere temporary for the banking industry as a whole.
All other banks like ICICI/Kotak/Axis already have their respective NBFCs like housing finance etc already a subsidiary of their bank so as a consolidated structure they were managing this balance well. (or should we say better?) This reverse merger in case of HDFC bank was unusual legacy issue where bank was a subsidiary of an NBFC because HDFC came into existence almost 2 decades before the bank. This looks somewhat similar to the IDFC situation. (of course asset quality of NBFC difference and quicker reverse merger in case of later due to better regulations in place currently). This makes be think that the valuation metrics that HDFC bank earlier enjoyed maybe because of this unusual structure which other banks lacked. This reverse merger was a mega reset. Fortunately asset quality of HDFC was good so no challenges on that front but does this mean that the valuation difference the bank enjoyed would never see reversion to mean? Views invited
All major private sector banks have seen their P/B ratio moderating from May 2025 High to March 2026 Low.
For ICICI Bank P/B ratio has corrected from 4.0 to 2.5 till March 2026 End. Same has happened with HDFC Bank, Axis Bank, Kotak Bank.
That means, all private banking stocks and hence Bank Nifty has seen its P/B correcting from > 3.5 to 2.0 or so. This looks like a wider phenomenon due to external geopolitical situations, rising inflation, probability of NPAs going up due to financial uncertainty.
In case of HDFC Bank, this correction could be slightly more but it looks inline with all large private banks.
Focus should be more on evaluating the P/B correction across Private Banks, Reasons, When P/B will move towards 3 or 5 Year Median P/B, NPA impacts, margin pressures in addition to Deposit growth.
This is my overall observation about private banking sector. I may be wrong in my views and analysis.