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HDFC Bank's Q4 FY26 financial results offer a look at the ongoing impact of its merger with HDFC Limited. While profit rose and a dividend was recommended, the bank continues to navigate margin pressures and shifts in funding costs.
Profit and Dividend Rise Despite Margin Concerns
HDFC Bank reported a standalone net profit of ₹19,221.05 crore for the fourth quarter of FY26, an increase of 9.11% from ₹17,616.14 crore in the prior year. Net Interest Income (NII) grew 3.8% year-over-year to ₹33,281.5 crore. The Board of Directors recommended a final dividend of ₹13.00 per equity share for FY26. Operating profit saw a 4.37% rise to ₹27,803 crore. The bank's gross non-performing assets (GNPA) ratio declined to 0.38% in Q4 FY26 from 0.42% in the previous quarter, showing improved asset quality. However, the Net Interest Margin (NIM) for the quarter was 3.39% year-over-year, which, while stable sequentially, has not fully recovered to pre-merger levels.
The bank's stock price has seen a notable decline from its post-merger highs, trading around ₹799.90 on April 17, 2026, significantly lower than levels seen in mid-2023.
Valuations and Market Context
HDFC Bank holds a market capitalization of approximately ₹12.31 lakh crore as of April 2026, with a Price-to-Earnings (P/E) ratio between 16.5 and 18.5. For comparison, State Bank of India (SBI) trades at a P/E ratio of 11-13, while ICICI Bank's P/E ratio ranges from 16.7 to 18.4, placing it in a similar valuation band. The broader Indian banking sector saw strong credit growth of an estimated 16.1% year-over-year for FY26, with deposits growing 13.5% year-over-year. This environment is marked by tighter liquidity, influenced by global tensions and currency shifts, which are likely to increase margin pressure across the sector. Despite these pressures, HDFC Bank's management aims to match system-level credit growth in FY26 and outperform in FY27.
Merger's Impact on Funding Costs and Governance
Despite improved Q4 results, integration challenges from the HDFC Limited merger continue to affect the bank. The Current Account Savings Account (CASA) ratio, a key source of low-cost funding, has dropped significantly, falling from pre-merger levels of around 44-48% to approximately 34% by mid-2025. Borrowings have also risen substantially post-merger, increasing liabilities and funding costs. While borrowings have eased from their peak, they remain higher than before the merger, contributing to NIM pressure. Concerns over governance credibility and management stability, following recent board departures, could limit the stock's upside potential despite operational performance.
Analyst Views and Future Outlook
Analysts are cautiously optimistic, with most recommending a 'Buy' rating for HDFC Bank stock. Out of 33 reports reviewed, 46 analysts rated it a 'Buy', one a 'Hold', and none a 'Sell'. The consensus price target suggests an upside of approximately 37.64% from the current trading price of ₹799.90. Motilal Oswal Financial Services projects FY27 Return on Assets (RoA) and Return on Equity (RoE) of around 1.9% and 14.6%, respectively, supported by consistent execution and strong fundamentals. Management guidance indicates loan growth is expected to stay in line with the system. However, tighter liquidity conditions and managing higher funding costs will be key factors to watch for continued margin growth next fiscal year.