HDFC Bank leadership change supports loan growth, margin recovery and FY28 earnings

Leadership Transition Removes Succession Overhang

Motilal Oswal Financial Services, in its October 4, 2026 company update on HDFC Bank, reiterates its Buy recommendation following RBI approval of Anup Bagchi as the bank’s new Managing Director and Chief Executive Officer. Mr Bagchi will begin a three-year term on October 27, 2026, succeeding Sashidhar Jagdishan, whose term ends on October 26, 2026.

The broker views the appointment as removing an important leadership-succession overhang and bringing an external perspective while HDFC Bank seeks to rebuild investor confidence.

Mr Bagchi has more than three decades of experience across banking, capital markets, wealth management and insurance. He has been associated with the ICICI Group since 1992, including leadership roles at ICICI Securities, ICICI Bank and ICICI Prudential Life Insurance.

Motilal Oswal believes his experience in retail liabilities, digital channels, partnerships and third-party distribution can support customer acquisition and deepen existing customer relationships. His experience across banking, mortgages, insurance, wealth and capital markets is also expected to help HDFC Bank extract more cross-selling and operating-leverage benefits from the HDFC Ltd merger.

Operating Priorities and Margin Recovery

The broker identifies CASA mobilisation, margin recovery, credit growth and merger synergies as HDFC Bank’s principal operating priorities. The CASA ratio was 32.3 per cent as of June 2026 and has been under pressure after the merger.

Net interest margin was 3.26 per cent, having been diluted by high-cost HDFC Ltd liabilities and an unfavourable repo-rate cycle. Motilal Oswal expects margins to expand in coming quarters as borrowings decline, which were 11 per cent of the balance sheet, and as the interest-rate environment potentially turns favourable. Its estimates indicate that NIM could bottom out at 3.2 per cent in FY27E before recovering to 3.3 per cent in FY28E.

Credit Growth, Deposits and Asset Quality

HDFC Bank had slowed credit growth to a 9 per cent CAGR during FY24 to FY26 because its credit-deposit ratio had reached 110 per cent at its peak. With the ratio now near 95 per cent, Motilal Oswal expects the bank to regain growth momentum and forecasts a 14 per cent loan CAGR over FY26 to FY28E.

Asset quality is expected to remain steady, with gross and net NPA ratios estimated at 1.1 per cent and 0.4 per cent, respectively, in both FY27E and FY28E.

Earnings and Operating Outlook

Motilal Oswal expects operating performance to improve from FY28E, supported by loan growth, margin recovery and operating leverage.

The broker expects RoA of about 1.7 per cent, including the potential impact of lower insurance commissions, and projects a FY28E cost-to-income ratio of 37.4 per cent. The report notes that HDFC Bank’s stock had underperformed peers amid post-merger adjustment challenges and governance concerns following the chairman’s sudden resignation.

Valuation and Investment Thesis

Motilal Oswal values HDFC Bank on a sum-of-the-parts basis. The core bank is valued at 1.8 times March 2028E adjusted book value, contributing Rs 796 per share. Subsidiary value after a 20 per cent holding-company discount contributes Rs 128 per share, including stakes in HDB Financial Services, HDFC Securities, HDFC Life Insurance, HDFC Ergo General Insurance and HDFC AMC.

This supports the Rs 925 target price. The investment thesis depends on leadership stability, stronger CASA mobilisation, recovery in NIM, renewed credit growth and delivery of merger-related cross-selling and efficiency benefits.

Key Risks

• Slower-than-expected execution on leadership, CASA mobilisation, margin recovery, credit growth or merger-related priorities.
• Continued pressure on margins.
• Potential changes to insurance commissions that could constrain the anticipated earnings recovery.