Axis Securities analyst Dnyanada Vaidya has provided a comprehensive assessment of HDFC Bank 's financial trajectory, highlighting both opportunities and challenges as the bank navigates post-merger integration while targeting improved profitability metrics.

Loan-to-Deposit Ratio Targets Face Headwinds

Vaidya expressed cautious optimism about HDFC Bank's stated goal of achieving a 90% loan-to-deposit ratio by FY27, though she noted significant challenges ahead. The analyst explained that achieving this target would require exceptional deposit mobilisation efforts, with deposit growth needing to exceed credit growth by 400-500 basis points.

"If loan growth is 200 basis points higher than systemic growth, pegging loan growth to about 15% for FY27, deposit growth will need to be at least 400 to 500 basis points higher than credit growth," Vaidya noted. She emphasised that while the bank has levers to accelerate deposit mobilisation, returning to pre-merger LDR levels of 87-88% appears challenging in the current scenario.

Branch Network Maturity Key to Deposit Strategy

The analyst highlighted the critical role of HDFC Bank's branch network in achieving aggressive deposit growth targets. She pointed to management guidance indicating that branches with over five years of vintage typically generate three times more deposits than newer branches.

Key factors supporting deposit mobilisation include:

• Leveraging mature branch network for CASA growth
• Deepening customer relationships through existing franchises
• Utilising strong mortgage and credit card customer base
• Aggressive CASA mobilisation strategies

Vaidya noted that a fair chunk of HDFC Bank's branch network is moving into the five-year-plus vintage category, providing opportunities to leverage this infrastructure for enhanced deposit collection.

Profitability Metrics Show Mixed Signals

Despite facing one-off adjustments during the quarter, HDFC Bank demonstrated resilience in core profitability metrics. The bank reported an 8 basis point improvement in margins, which Vaidya described as a positive surprise.

"The 8 billion one-off that they had in the earnings was a little bit of a surprise and was on the higher side," Vaidya observed. However, excluding the ₹5.00 billion provision for PSL-compliant agricultural loans, credit costs remained stable and benign, particularly for HDFC Bank's portfolio.

Competitive Positioning Against ICICI Bank

Vaidya addressed the ongoing comparison between HDFC Bank and ICICI Bank, noting that while HDFC Bank currently lags on return on assets and net interest margins, she expects the valuation gap to narrow over time. ICICI Bank faced its own challenges with a reclassification-related provisioning hit that caused an earnings miss.

For ICICI Bank, credit costs remained stable at 35-36 basis points, representing steady-state performance. The recent reappointment of MD and CEO Sandeep Bakhshi for two years until October 28 removes a key overhang for the stock, which Vaidya expects to support future performance.

Investment Outlook and Recommendations

Vaidya sees recent corrections in HDFC Bank's stock price as creating entry opportunities for investors. She believes the largely inline quarterly numbers, combined with no major concerns over key parameters, position the bank favourably for near-term performance.

Among mid-sized lenders, she highlighted Federal Bank as a standout performer with stellar quarterly results, positive margin surprises, and improving growth trajectory. The analyst expects Federal Bank's return on assets to improve from 1.10% in FY26 to 1.40% by FY28, driven by margin improvements and declining operational expense ratios.

Sector Preferences and Strategy

Summarising her broader banking sector outlook, Vaidya noted that mid and smaller banks have outperformed larger peers on margins, broadly aligning with expectations. Her preferred picks include Kotak and HDFC Bank among larger banks, Federal Bank in the mid-sized category, and Ujjivan among small finance banks, reflecting a diversified approach across different banking segments.

Investment research firm Bernstein has issued an outperform rating on HDFC Bank with a target price of ₹1,200.00. The rating suggests the investment firm maintains a positive outlook on the banking major's stock performance.

Investment Rating Overview

The outperform rating from Bernstein indicates the firm's expectation that HDFC Bank's stock may deliver returns above market averages. The ₹1,200.00 target price represents the firm's assessment of the stock's potential value.

However, the available information does not include detailed analysis, financial rationale, or supporting metrics that typically accompany investment research reports from major firms like Bernstein.