HDFC Bank should focus on getting its operations back on track, strengthening its core banking business and laying out a clear succession plan instead of relying too much on third-party product distribution, according to Gurmeet Chadha, Managing Partner and CIO at Complete Circle.
Speaking to NDTV Profit, Chadha said the bank has faced internal misalignment since its mega-merger, with different verticals operating in silos. He also pointed to communication gaps, which he said have compounded operational issues, including those surrounding AT1 bonds.
Focus Back On Core Banking
Chadha said one of the key priorities for HDFC Bank should be a return to core banking, particularly deposit mobilisation, instead of putting excessive emphasis on selling third-party products.
Insurance commissions contribute around Rs 6,000-7,000 crore to the bank's profit before tax, or roughly 8-10% of PBT, according to Chadha. This compares with around 0.7% for peer ICICI Bank.
The high focus on third-party product distribution has also increased pressure on employees and contributed to attrition at the mid-management level, he said.
Another concern is employee stock ownership plans. Chadha pointed out that ESOPs, which have historically been an important source of wealth creation for mid- and senior-level management, have remained largely stagnant over the past five years.
Also Read: HDFC Bank Target Price Revised As Motilal Oswal Sees 28% Upside — What's Driving The Bullish Call?
Leadership Transition In Focus
A clear leadership and succession roadmap will be another important factor for the bank as it works through its post-merger normalisation phase.
Chadha said an internal appointment could help provide stability, with Executive Director Kaizad Bharucha among the names that could be considered. A strong internal successor, backed by a well-defined long-term succession plan, could help the lender address some of the current organisational challenges.
Long-Term Outlook Remains Positive
Despite operational concerns and the bank's multi-year stock underperformance, Chadha remains positive on HDFC Bank's long-term risk-reward profile.
He said periods of negative headlines and uncertainty can often create attractive entry points for investors. At current valuations, the stock could therefore offer an opportunity for investors with a medium- to long-term investment horizon, provided the bank is able to execute on operational normalisation, return to its core banking strengths and bring greater clarity to its leadership transition.
Also read: HDFC Bank CEO Exit Plan: Analysts See Limited Downside, Back Fresh Leadership
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