HDFC Bank has unveiled its strategic roadmap to enhance profit margins over the next two to three years, focusing on a comprehensive cost optimization and deposit restructuring approach. The bank's leadership expressed confidence in their ability to achieve meaningful margin improvements through targeted operational adjustments.

Strategic Focus Areas

The bank's margin enhancement strategy encompasses three key pillars designed to optimize funding costs and improve overall profitability:

Fund Cost Optimization Approach

HDFC Bank's primary focus lies in reducing fund costs through strategic time deposit adjustments. This approach involves optimizing the bank's deposit portfolio to achieve a more cost-effective funding structure. The bank aims to balance competitive deposit rates while maintaining its market position and customer relationships.

The reduction in borrowing represents another crucial element of the strategy, as it will help decrease the bank's reliance on external funding sources that typically carry higher costs compared to customer deposits.

CASA Growth Initiative

The bank has identified Current Account Savings Account (CASA) growth as a critical driver for margin improvement. CASA deposits typically offer lower cost funding compared to term deposits, making them essential for enhancing net interest margins. The focus on increasing CASA growth reflects the bank's commitment to strengthening its retail banking franchise and customer relationships.

Timeline and Implementation

HDFC Bank has set a realistic timeline of two to three years for achieving these margin improvements, indicating a measured and sustainable approach to operational enhancement. This timeframe allows for gradual implementation of strategic changes while maintaining business continuity and customer service standards.

The bank's confidence in executing this strategy demonstrates its commitment to delivering improved financial performance and shareholder value through operational excellence and strategic positioning in the competitive banking landscape.

ICICI Bank shares fell 3.03% to ₹1,368.10 on Monday afternoon, despite brokerages maintaining a positive outlook following the bank's mixed third-quarter results and the announcement of CEO Sandeep Bakhshi's tenure extension. The stock traded in a range of ₹1,360-1,400 during the session, with sell orders dominating at 64.86% against 35.14% buy orders.

Trading Activity and Market Response

Trading volumes remained robust during the session, reflecting significant investor interest despite the price decline. The market reaction comes amid mixed sentiment following the bank's quarterly performance disclosure.

Financial Performance Overview

ICICI Bank reported a profit after tax of ₹11,320 crore for the third quarter, marking a decline of 4% year-on-year and 8.4% quarter-on-quarter. The decline was primarily driven by an unexpected RBI-mandated standard asset provision of ₹1,283 crore on an agri priority sector credit portfolio worth ₹20,000-25,000 crore, flagged during the regulator's annual supervisory review for non-compliance with priority sector norms.

Analysts noted that excluding one-time provisions, core pre-provisioning operating profit grew 6-7% year-on-year. Credit growth accelerated to 11.5% annually, while net interest margins remained stable at 4.30%. Asset quality stayed resilient with gross non-performing assets at 1.53%.

Positive Brokerage Outlook Despite Challenges

Leading brokerages have retained their buy ratings despite the provision impact, with several firms highlighting the board's approval of Bakhshi's two-year extension until October 2028 as a significant positive, removing a major overhang.

Anand Rathi maintained its buy recommendation with a target price of ₹1,713, valuing the core bank at 2.5 times FY28 price-to-adjusted book value. Systematix Institutional Equities raised its target to ₹1,770 from ₹1,590, while SBI Securities pegged fair value at ₹1,700-1,750.

Future Outlook and Concerns

However, concerns persist around elevated credit costs in coming quarters as the bank works toward regularising the flagged agri portfolio. The stock is currently trading at a price-to-book multiple of 3.0 times estimated book value, reflecting the market's cautious stance on near-term challenges while acknowledging the bank's strong fundamentals and leadership continuity.