HDFC Bank Downgraded To 'Outperform' By CLSA Over Mid-Term Challenges

HDFC Bank Ltd. will be prudent with deposit pricing and sacrifice growth if the need arises, according to CLSA.

The brokerage downgraded the stock to 'outperform' from 'buy', slashing the target price to Rs 1,650 from Rs 2,025 earlier. This implies an upside of slightly over 15.7% from the current levels.

While the merger with Housing Development Finance Corp. offers long-term benefits, the private sector lender will face more challenges than upsides in the medium term, CLSA said in a note dated March 7.

The bank needs to gather deposits significantly in an environment where the sector is struggling to do so, it said. "We cut our deposit accretion for FY25CL from Rs 5.2 lakh crore to Rs 4.2 lakh crore and accordingly our loan growth from 15% to 10%."

HDFC Bank's loan-growth target of 15% need incremental deposit accretion to increase 70% in FY25CL compared to the year-ago period, according to CLSA. "Unless the macro environment improves significantly, we think this will be difficult, especially given that HFDC Bank is cost-conscious when it comes to deposits."

The branches opened in the past few quarters will need time to scale up and yield minimal benefits in the medium term. On the operational front, while CASA mix is expected to decline, the net interest margin is likely to be broadly stable for the next few quarters and "inch up only in FY26", CLSA said.