Governance Issues Cloud HDFC Bank

HDFC Bank's market position faced a challenge with the unexpected resignation of its non-executive chairman, Atanu Chakraborty, on March 18, 2026. Chakraborty cited personal values and ethics conflicting with observed practices at the bank over the past two years. His departure quickly caused investor concern and led to a significant stock price drop.
The market reacted with a sell-off that saw shares drop nearly 9% and hit a 52-week low around ₹770 in the days following the announcement, wiping out about ₹1.6 lakh crore in market value within three sessions.
In response, HDFC Bank has initiated an external legal review of the resignation circumstances, with Keki Mistry appointed as interim chairman for three months. Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey stated that independent directors need to act responsibly and avoid unproven claims. He also confirmed SEBI is reviewing the matter to establish the facts. The Reserve Bank of India (RBI), however, found no "material concerns" regarding HDFC Bank's conduct or governance, affirming the bank's solid capital and financial health.
Despite these assurances, investor sentiment is cautious, with an expected "governance discount" until there is more clarity. Adding to the situation, reports indicated the dismissal of three senior executives over alleged mis-selling of Credit Suisse AT1 bonds, raising questions about past operational problems.

SBI's Strong Growth Momentum

In contrast, State Bank of India (SBI) continues its upward path, showing strong and consistent growth. The bank's stock has seen significant gains, with a 1-year return of approximately 37% and a 5-year return nearing 177%. In 2025 alone, SBI shares gained roughly 25%, its fifth year in a row of positive returns and outperforming most private banks.
Financially, SBI reported a record quarterly net profit of ₹21,028.15 crore for Q3 FY26, a 24.49% increase from last year. This performance was fueled by a 39.54% increase in operating profit and controlled credit costs. Advances grew by a strong 15.14% year-on-year to over ₹46.8 lakh crore, with management raising its domestic loan growth forecast to 13-15% for FY26. Deposit growth, while slower at 9.02%, matched loan growth, keeping a CASA ratio around 37-39%.
SBI's focus on expanding its digital platform, YONO, and its wide reach continues to support its operating leverage and ROA.

Comparing Financial Performance

Comparing key operational metrics shows different pictures.
HDFC Bank reported a net profit of ₹18,653 crore in Q3 FY26, up 11.5% from last year, with a balance sheet of ₹40.89 lakh crore. Its Net Interest Margin (NIM) is strong at about 3.35-3.42%, and its Return on Assets (ROA) is about 1.91% over the past three years. Capital Adequacy Ratio (CAR) is strong at 19.55%, with gross NPAs at 1.24% and net NPAs at 0.42%.
SBI, meanwhile, saw a 24.49% profit increase on ₹103 lakh crore total business volume. Its NIM is lower, around 2.99% overall and 3.12% domestically, with an ROA of 1.16%. However, SBI's Return on Equity (ROE) is much higher at 20.68%, and its asset quality improved, with gross NPAs at 1.57% and net NPAs at 0.39%. SBI's CAR is 14.04%.
The faster credit growth at SBI (15.14%) outpaced deposit growth (9.02%), creating a wider funding gap than HDFC Bank, where deposit growth (11.6%) was closer to loan growth (~11.9%).

Valuation: Risk vs. Growth

Market valuations reflect the banks' different stories.
SBI trades at a Price-to-Earnings (P/E) ratio of about 10.8-12.14, with a market value of about ₹9.5 trillion. Analysts have 'Buy' ratings with target prices in the ₹1,250-₹1,300 range, but some believe valuations are getting high after its strong rally.
HDFC Bank, despite strong operational metrics and solid CAR, has a higher P/E ratio, between 15.9 and 17.7. Its market value is around ₹11.58 trillion, though analyst targets range from ₹1,100 to ₹1,225, mostly based on 'Buy' or 'Strong Buy' ratings due to its strong fundamentals and appealing valuations. However, this valuation may include a "governance discount".
Competitors like ICICI Bank trade at a P/E of ~16.83, and Axis Bank at ~13.98. While HDFC Bank, ICICI Bank, and Axis Bank are seen as attractively valued compared to their long-term averages after recent price drops, SBI's outperformance might be harder to maintain as its valuations reach historical averages.

Risks for HDFC Bank

The main risk for HDFC Bank comes from the unclear reasons for the chairman's exit. While the RBI and bank management played down significant governance issues, the ongoing review and the ethical disagreements cited create uncertainty. This could lead to more negative disclosures, greater regulatory scrutiny, or difficulty attracting and keeping top talent, which could affect investor confidence and future fundraising.
Past allegations of mis-selling financial products also provide context, suggesting control gaps that need close attention. Unlike SBI, which has a clear, straightforward growth story, HDFC Bank faces the risk of its operational strengths being overshadowed by ongoing governance news. The gradual departure of other senior staff and the CEO's term renewal in October 2026 add to questions about leadership continuity.

Analyst Views

Brokerages generally have a positive outlook for both banking giants, though their focus differs.
For HDFC Bank, analysts are focusing beyond the current uncertainty on its core strengths, expecting a recovery driven by stable management, deposit growth, and merger synergies. However, some are cautious, citing "limited clarity on the reasons behind the chairman's exit" as a potential concern.
On SBI, analysts point to strong earnings visibility, faster credit growth, and better asset quality as key drivers. While the bank's performance has been excellent, a 'Hold' rating suggests current valuations may limit significant further gains, advising investors to watch the situation closely. The overall banking sector sentiment points to steady loan growth but increasing competition and challenges in attracting deposits, especially for private banks, while public sector banks may struggle to repeat their recent strong performance.