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HDFC Bank announced a net profit of ₹19,221 crore for the fourth quarter of FY26, a 9.1% rise from the previous year and higher than market forecasts. This profit boost came largely from needing to set aside fewer funds for potential loan losses and from controlling operating expenses, rather than strong growth in its core earnings. Net interest income, a key measure of profitability, grew only 3.8% to ₹33,281.5 crore, missing expectations as net interest margins faced ongoing pressure. The bank's stock saw gains in aftermarket trading after the earnings release.
These results come as Indian banks face common industry challenges. The ratio of loans to deposits has reached a record high, with credit growth expected to outpace deposit growth through FY27. This intense competition for deposits is causing a drop in low-cost current and savings accounts (CASA) and forcing banks to rely more on expensive term deposits. This trend is squeezing net interest margins. Elara Capital predicts that bank NIMs may not see smooth improvement in 2026, potentially challenging recovery hopes for FY27 due to these deposit issues and increased competition.
Looking at valuations, HDFC Bank's price-to-earnings ratio over the last twelve months is between 16.41 and 17.85. This places it competitively against peers like Axis Bank (P/E around 16.03-16.12) and ICICI Bank (P/E around 17.55-18.38). Kotak Mahindra Bank trades at a higher P/E range (20.41-33.2). Despite the recent quarterly profit resilience, HDFC Bank's stock has fallen 25% in the past six months, indicating a significant disconnect between its market performance and reported earnings.
The sustainability of HDFC Bank's profit growth is questioned by some due to the large reduction in provisions, which directly boosted its bottom line. The reported net interest margin of 3.38% is stable from the previous quarter but lower than 3.54% in Q4 FY25, signaling early signs of margin compression. Rising funding costs, driven by the industry-wide deposit shortage and increased reliance on term deposits (making up about 66% of total deposits), pose a significant threat to future profits. Fitch Ratings forecasts that NIMs could decline by around 10 basis points in FY26 due to potential policy rate cuts. Fiercer competition, including from more efficient public sector banks, and a sector-wide focus on growth over profitability also limit how much banks can increase lending yields. The bank also has substantial contingent liabilities of ₹27,80,601 crore. While many brokerages remain positive with price targets up to ₹1,200, one analyst report showed a "Reduce" consensus, with one sell and one hold rating, highlighting differing expert opinions. Nuvama Institutional Equities has also lowered its FY27 earnings and target price estimates, citing limited near-term upside potential.
Bank management expressed confidence in its financial strength. CEO Sashidhar Jagdishan stated that funding and the loan-to-deposit ratio are no longer limitations. The bank saw robust deposit growth of 14.4% year-on-year, improving its loan-to-deposit ratio to 95%. Analysts project its return on assets (RoA) to be around 1.8-1.9% and return on equity (RoE) at 14% for FY27-28. Brokerages like ICICI Direct maintain a "BUY" rating with a target price of ₹1,050, pointing to healthy credit trends, an improving funding situation, and a well-capitalized balance sheet. However, achieving these return targets will depend on how well the bank navigates increasing funding costs and converts deposit growth into profitable loans amid tough competition and potential margin squeezes.