HDFC Bank Ltd. has finally moved to address the biggest overhang on its stock. India's largest private bank has appointed former finance secretary Rajiv Kumar as its part-time non-executive chairman, named former Axis Bank Chief Financial Officer Puneet Sharma as CFO-designate, and is expected to reappoint Chief Executive Officer Sashidhar Jagdishan after external legal reviews found no merit in governance concerns raised by former chairman Atanu Chakraborty.
This leadership reset comes at a crucial time. While HDFC Bank have remained remarkably resilient, its market valuation reflects deep investor anxiety. The stock has plunged about 20% so far in 2026, severely underperforming the Nifty Private Bank index's 3% fall.
Sure, the bank has had its share of challenges. Aggressive competition amid financialisation of household assets have resulted in slow deposit mobilisation and higher funding costs. The net interest margin (NIM) has compressed, and asset-quality concerns have played spoilsport.
But these are industry-wide issues, not specific to HDFC Bank. So, what explains HDFC’s steep underperformance versus the private bank index?
Legacy high-cost borrowings from the merged HDFC Ltd. have been weighing on margins and the credit-deposit ratio. While management has insisted otherwise, if CDR isn’t reined in, it could hold back credit growth. Moreover, reliance on high-cost borrowings weighs on margins.
The stock had dropped 15% in 2026 even before the controversial resignation of former chairman Atanu Chakraborty on 18 March.
Fog lifting
But this merger overhang is lifting. Deposits grew 14.4% year-on-year in the March quarter (Q4 FY26) versus 11.6% in the previous quarter, and faster than the 12.1% growth in advances. In fact, with a focus on granular deposits, the bank has been gaining 30-50 basis points of deposit market share for five consecutive years. CDR moderated to 94.6% from nearly 99% in Q3FY26.
One basis point is one-hundredth of a percentage point.
The merger synergies are kicking in as well. Since the merger, liability penetration in the home loan franchise has improved from 36% to 50%, with 60-65% of borrowers now routing EMIs through HDFC Bank accounts, improving customer stickiness and current account and savings account (CASA) mobilisation.
Asset quality also remains among the best in the industry. Gross non-performing assets (NPAs) are at just 1.15%, while net NPA is below 0.4%. Return on assets has remained stable at 1.9% despite lower NIMs.
Regulatory credibility
But Chakraborty's abrupt resignation over alleged differences on “values and ethics” created a drag that overshadowed the healthy March-quarter earnings. It also delayed the process of extending Jagdishan's tenure, introducing an element of leadership uncertainty. The stock is trading 6% below where it was on 18 March, while the private bank index has rallied 7% since then.
Rajiv Kumar's appointment brings much-needed regulatory credibility. As finance secretary, he oversaw a comprehensive NPA cleanup, and recapitalisation and consolidation of public sector banks. Meanwhile, independent legal reviews have cleared the path for Jagdishan's likely reappointment.
Sure, competition for deposits remains intense, margin recovery will take time, and credit costs will need to be monitored closely amid the finance ministry’s early-warning signal of stress in retail, agriculture, and MSME loans.
But the HDFC Bank stock seems to be factoring in a governance discount. Trading at just 2 times FY27 book value estimates, per Bloomberg, it is cheaper than its historical median of three times. The latest leadership changes may well prove to be the missing piece of the puzzle, allowing investors to refocus on the bank's operating strengths rather than corporate governance headlines.