HDFC Bank has arguably been one of the most battered large private banks this year. The stock has corrected nearly 20% so far in 2026, leaving many investors wondering whether this is an opportunity to enter the stock or a sign of deeper challenge.
The bank has been dealing with leadership-related developments as well as the governance concerns which have continued to weigh on key financial metrics such as net interest margins (NIMs). While some of these concerns have started easing, investors are still looking for clarity on what could drive the next leg of growth.
So, is the recent correction an opportunity to accumulate the stock, or should investors continue to wait?
Financialexpress.com spoke to market experts to understand whether the governance overhang is now behind the bank, what the biggest trigger for the stock could be going forward, and whether current valuations justify fresh investments.
HDFC Bank: Investors are watching out for key decision
One of the biggest questions surrounding HDFC Bank over the past few months has been its leadership and governance.
According to Vinod Nair, Head of Research at Geojit Investments, much of the uncertainty has now started fading.
He said, “The governance overhang at HDFC Bank has largely eased following the independent legal review that found no merit in the former chairman’s allegations, while the appointment of Rajiv Kumar has further strengthened board credibility.”
However, another leadership-related development continues to remain on investors’ radar.
Dnyanada Vaidya, Research Analyst – BFSI at Axis Direct, said the reappointment of the bank’s current Managing Director and CEO remains an important monitorable.
According to her, “While the legal review clearing the bank of allegations offers some relief, we continue to remain watchful regarding the development around the re-appointment of the current MD & CEO, as this ensures seamless execution of the bank’s long term strategy and remains a catalyst for stock performance.”
Vaidya added, “the recent appointment of Rajiv Kumar as the part-time chairman and Puneet Sharma as the CFO designate has strengthened the senior leadership team, which is an added positive.”
The next trigger may not be governance – it could be margins
While governance issues have dominated headlines, experts believe the bigger factor influencing HDFC Bank’s valuation going forward is likely to be its profitability.
Vinod Nair believes the next major re-rating trigger is not asset quality but the recovery in net interest margins.
He added, “Going forward, the key re-rating trigger is likely to be NIM recovery rather than asset quality. Although the bank continues to maintain best-in-class asset quality, NIM remains subdued at around 3.4%, below pre-merger levels of over 4%, reflecting a high credit-deposit ratio, elevated funding costs, and yield compression.”
According to him, the lower margins reflect a combination of a high credit-deposit ratio, elevated funding costs and pressure on lending yields.
“For long-term investors, current valuations appear attractive, with FY27 margin normalization expected to be the primary catalyst for a meaningful re-rating,” noted Vinod Nair.
The bank is working on improving its balance sheet
Apart from leadership changes, experts also highlighted several operational initiatives that could influence HDFC Bank’s performance over the next few years.
According to Dnyanada Vaidya, the bank has been making concentrated efforts to improve its deposit market share as part of its strategy to reduce the loan-to-deposit ratio (LDR).
She said the bank continues to maintain a disciplined approach towards growth, focusing more on risk-adjusted returns rather than aggressive lending.
Dnyanada Vaidya added, “As per our estimates, the credit growth rate differential between HDFCB and its larger private banking peers is nearly 150-200bps and narrowing this gap should bode well for the stock performance. Asset quality has always remained pristine for HDFCB and we do not foresee any material deterioration in asset quality despite uncertain macros.”
Asset quality remains a key strength
Despite macroeconomic uncertainties, analysts do not expect a significant deterioration in HDFC Bank’s loan book.
Vaidya said the bank’s asset quality has consistently remained among the strongest in the industry, and she does not foresee any material deterioration going forward.
With limited opportunities for margin expansion in the near term, she believes management is instead focusing on improving return on assets (RoA) through better operational efficiency, technology investments and disciplined control over credit costs.
She also pointed out that the bank’s growth momentum improved towards the end of FY26.
She noted, “Amidst limited opportunities for NIM expansion, the bank’s focus remains on improving RoA by leveraging investments to drive operational efficiency and maintaining benign credit costs supported by stable asset quality metrics. We expect gradual yet measured improvement in RoA to 1.9% over the medium term vs 1.8% in FY26.”
Should investors buy HDFC Bank now?
While experts broadly agree that HDFC Bank’s long-term fundamentals remain stable, their advice differs slightly when it comes to fresh investments.
Vinod Nair believes the current valuation appears attractive for long-term investors, particularly if margins begin to normalise over the next two years.
His view is that FY27 could become an important turning point if profitability improves as expected.
According to Vaidya, the current risk-reward ratio appears favourable and downside risks seem limited at existing valuations.
Even so, she believes investors currently have better opportunities within the private banking space.
Vaidya added, “We believe that at current valuations the risk-reward is favourable and the downside risk appears limited. However, we would continue to prefer ICICI Bank and Kotak Mahindra Bank over HDFC Bank due to their better return profile, healthier growth prospects and well contained asset quality metrics. Existing investors of HDFC Bank can continue to hold the stock.”
For existing HDFC Bank shareholders, she recommends continuing to hold the stock.
At the same time, she said the brokerage is not recommending fresh entry into HDFC Bank at the current stage.
Stock performance remains under pressure
HDFC Bank shares have declined around 20% over the past one year despite recovering nearly 6% over the last month. Over the last six months, the stock has also remained under pressure.
The bank’s 52-week high stands at Rs 1,020.50, while the 52-week low is Rs 726.65.
What investors need to watch
For now, analysts believe the biggest concerns surrounding HDFC Bank’s governance have started easing, helped by recent leadership appointments and the outcome of the independent legal review. However, the market’s attention is gradually shifting from governance to financial performance.
The next phase for the stock is likely to depend on whether the bank can improve its net interest margins, continue strengthening its deposit franchise, narrow the credit growth gap with peers and maintain its strong asset quality.
Disclaimer: The views and analysis expressed above represent the opinions of independent market experts and research analysts and do not constitute direct investment advice, an offer, or a solicitation to buy or sell any securities. HDFC Bank’s stock performance and future financial metrics, including net interest margins (NIMs) and return on assets (RoA), are subject to market risks, regulatory changes, and broader macroeconomic conditions. Readers are advised to evaluate their risk appetite and consult a SEBI-registered investment advisor before making any fresh investment or portfolio decisions based on these commentaries. This disclaimer has been generated using AI to support user well-being and responsible content consumption.