HDFC Bank Ltd. has witnessed unprecedented selling, especially from foreign portfolio investors. The key trigger for the sell-off, which led to over $11 billion in erosion in the stock's market cap, is seen as the failure of the management to manage expectations.
People in the know NDTV Profit spoke to said the management should have guided the investors to align them with the current realities. The focus of the investors should have been taken away from the net interest margin, they said.
The macroeconomic scenario since the merger with the Housing Development Finance Corp. was announced has changed, and this should have been communicated to temper expectations.
The rising cost of funds and the tight liquidity are bound to have an impact on NIMs. "It's the return on equity that the market should focus on'', one of the people in the know pointed out.
Currently, high-cost borrowings form 21% of the bank's liabilities, compared to 8% before the merger was concluded in July 2023.
In fact, the management should come out and do damage control by clearly guiding the market on what to expect as this is a transitionary phase, the person quoted above added.
With interest rates on the rise, the cost of funds will continue to be high. But as the rate hike cycle is nearing an end, hiking deposit rates would not be a prudent strategy.
HDFC Bank saw its net profit rise by 2.5% quarter-on-quarter to Rs 16,373 crore, aided by a Rs 1,500 crore tax write-back and limited by a Rs 1,212 crore contingent provision.
While most metrics showed the bank to be on strong footing, the weaker 1.9% sequential growth on deposits and the lower-than-expected growth in net interest income spooked markets on Wednesday.
According to the bank's management, deposits need to grow 300–400 basis points higher than the pace at which credit is growing to bring down the credit-deposit ratio. Currently, the lender's credit-deposit ratio is at 110% as loans continue to outpace deposits.
There's nothing wrong with the bank, but its communication needs to be better, the person quoted above said.
Comprehensive Budget 2026 coverage, LIVE TV analysis, Stock Market and Industry reactions, Income Tax changes and Latest News on NDTV Profit.
