The Governance Fallout and Rebuilding Task
HDFC Bank is under intense scrutiny after its part-time Chairman, Atanu Chakraborty, resigned in March 2026. He cited practices that did not align with his personal ethics and values. This news led to a significant market reaction, with the stock falling over 14% in March and losing approximately ₹1.34 trillion in market value. The Reserve Bank of India (RBI) has appointed Keki Mistry as interim chairman and stated that the bank's financials are sound and its management competent. However, external law firms are reviewing the allegations. This governance uncertainty has caused some analysts, like Macquarie, to remove HDFC Bank from their buy lists. Jefferies, however, still holds a 'Buy' rating with a target price of ₹1,240, seeing potential for 64% upside. Overall, many analysts now rate HDFC Bank as 'Reduce' due to higher perceived risk. The bank's market value is between ₹11.26 and ₹13.01 lakh crore, trading at a price-to-earnings (P/E) ratio of 14.55 to 17.7, with these discounts partly due to governance concerns. A key decision for the board will be the term extension for CEO Sashidhar Jagdishan, whose current term ends in October 2026.
Merger Strain and High Loan-to-Deposit Ratio
The merger with HDFC Ltd., finalized in July 2023, continues to create operational and financial pressures. Integration efforts have significantly reduced net interest margins (NIMs), dropping from about 4.1% before the merger to around 3.35% in Q3 FY26. More concerning is the surge in the loan-to-deposit ratio (LDR) to nearly 100%, well above management's guidance of 90-96% for FY26 and 85-90% by FY27. This high ratio, a sharp rise from HDFC Bank's pre-merger LDR of 86-87%, suggests potential liquidity challenges because most deposits are being lent out. The bank's CASA (Current Account Savings Account) ratio has also fallen to 33.6% from 42.5% pre-merger. Experts note that large-scale mergers often take three to four years to fully pay off, placing HDFC Bank in a complicated 're-building' phase.
ICICI Bank's Strong Performance: A 'Sustenance' Story
In sharp contrast, ICICI Bank is seen as a story of 'sustenance,' benefiting from a more stable operating environment and a clear strategy. The bank currently holds a valuation premium of 10-15% over HDFC Bank, with analysts assigning higher multiples – for example, 1.8 times projected FY28 earnings compared to HDFC Bank's 1.5 times. ICICI Bank consistently shows better asset quality, reporting a Gross NPA ratio of 1.58% and Net NPA of 0.39% as of September 2025, compared to HDFC Bank's 1.24% GNPA and 0.42% NNPA in the same period. ICICI Bank also demonstrates stronger profitability, with a Return on Equity (ROE) of 17.9% and a Return on Assets (ROA) of 2.52% (Q4 FY25), outperforming HDFC Bank's 14.4% ROE and 1.94% ROA. Its net interest margin (NIM) held steady at 4.30% in Q2 FY26, supported by a healthy CASA base and careful deposit pricing, unlike HDFC Bank's squeezed margins. ICICI Bank's market value is approximately ₹8.63 lakh crore, with a P/E ratio around 16.3.
Key Challenges: Execution Risk and Restoring Trust
HDFC Bank's main challenge is the execution risk involved in its recovery plan. Regaining investor confidence after the governance issues will be a long process, potentially taking 12-24 months, much longer than typical short-term disruptions. The bank must substantially increase its deposits – needing an estimated 18-19% growth on its balance sheet size to effectively lower the LDR. This task is made harder by slower deposit growth across the sector (10.8% year-over-year as of March 15, 2026) compared to credit growth (13.9% year-over-year). Additionally, an ongoing investigation into the mis-selling of AT1 bonds, which led to three senior executives being terminated and a probe into the Dubai branch's operations, adds further reputational risk. While ICICI Bank is in a 'sustenance' mode, HDFC Bank faces the difficult job of 're-building' operational efficiency and market trust amid these widespread issues.
Analyst Views and What's Next
Analysts are divided on their sentiment for HDFC Bank. Some view the significant drop in valuation as an opportunity, pointing to attractive multiples and potential upside from firms like Jefferies (₹1,240 target) and JPMorgan ('Overweight', ₹1,010 target). Others are more cautious, with Weiss Ratings downgrading the bank to 'Sell'. The market is closely watching the results of the independent review into Chairman Chakraborty's resignation. Clarity on governance matters is seen as essential for any significant improvement in the bank's valuation. HDFC Bank's success will depend on its ability to manage the complex post-merger integration, aggressively grow deposits, and meet its LDR targets. Meanwhile, ICICI Bank is expected to maintain its steady 'sustenance' path, supported by its strong asset quality, healthy profit margins, and strategic focus. CEO Sandeep Bakhshi's term has been extended to October 2028.