IDBI Capital has reiterated its BUY recommendation on HDFC Bank, setting a revised target price of Rs 960, implying a potential upside of nearly 20% from the current market price of Rs 800. The bank’s Q4FY26 performance signals a decisive shift from post-merger consolidation toward growth acceleration. Credit growth rebounded to 12% YoY, while deposits expanded at a faster 14.4%, aiding balance sheet normalization. Despite pressure on net interest margins (NIMs), operational efficiency, improving asset quality, and stable return on assets (ROA) underscore resilience. The outlook remains structurally positive, supported by improving earnings visibility and strong franchise fundamentals.

Investment Call: BUY with Upside Visibility

IDBI Capital maintains a BUY rating on HDFC Bank with a target price of Rs 960. The valuation is anchored at approximately 1.9x FY28E P/ABV, reflecting confidence in earnings recovery and balance sheet strength. The brokerage believes recent market corrections have created an attractive entry point for long-term investors.

Key Levels for Investors:

Current Market Price (CMP): Rs 800
Target Price: Rs 960
Upside Potential: ~20%

Credit Growth Re-Acceleration Signals Momentum Shift

HDFC Bank’s credit growth surged to 12% YoY, marking a significant improvement from 7% in the previous quarter. This represents the strongest growth phase since the completion of merger integration.

Retail lending remains dominant, contributing nearly 53–54% of the loan mix.
Corporate lending gained traction across renewables, semiconductors, and manufacturing ecosystems.
MSME and business banking delivered robust growth of nearly 20%.

This broad-based expansion underscores a transition from integration to growth execution.

Deposit Franchise Strength Drives Balance Sheet Stability

Deposits grew 14.4% YoY, outpacing credit growth, leading to a steady normalization of the credit-deposit (CD) ratio.

Retail time deposits (below Rs 3 crore) contributed 47% of incremental deposits, up from 31% earlier.
CASA balances from merged mortgage customers rose sharply from Rs 50,000 crore to Rs 86,000 crore.
Liability penetration improved significantly, reflecting successful cross-selling.

This strong deposit momentum reinforces funding stability and long-term growth sustainability.

Margins Under Pressure but Efficiency Gains Offset Impact

Net Interest Margins (NIMs) declined due to faster repricing of EBLR-linked loans, which account for nearly 70% of the loan book.

However, the pressure was partially mitigated by:

Cost-to-income ratio improving to 39.5% from 40.5%
Stable ROA at 1.9%
Technology-led efficiencies reducing operational costs

Management emphasized that ROA remains the primary performance metric, rather than NIM alone.

Asset Quality Strengthens with Lower Slippages

Asset quality showed marked improvement, with GNPA declining to 1.15% from 1.24% sequentially.

Slippages normalized after seasonal spikes
Provisioning buffers remain strong at ~125 bps
Credit costs declined to manageable levels

The bank’s disciplined underwriting and diversified portfolio continue to underpin asset quality resilience.

Operational Leverage Driven by Technology and Scale

HDFC Bank is entering a phase of operating leverage realization, supported by years of investment in technology and distribution.

Digital penetration stands at 97% for payments and 92% for acquisitions
A proprietary AI platform is being deployed across multiple use cases
Customer base has crossed 100 million, with strong demographic tailwinds

These factors are expected to enhance productivity and improve cost efficiencies over the medium term.

Quarterly Financial Snapshot

Strategic Outlook: Growth Drivers in Place

Management remains optimistic about future growth, guiding for above-industry credit expansion in FY27.

Key growth drivers include:

Expansion in corporate lending (renewables, semiconductors)
Continued traction in retail segments such as mortgages and auto loans
Improved operating leverage from digital and AI investments

The bank’s focus remains on quality growth, stable ROA, and consistent EPS expansion.

Valuation and Investment Thesis

HDFC Bank is positioned at an inflection point, transitioning from integration challenges to a growth-driven cycle.

EPS expected to rise from Rs 48.5 in FY26 to Rs 67.2 by FY28E
Return ratios expected to stabilize and gradually improve
Valuation multiples remain attractive relative to historical averages

The combination of improving growth, strong asset quality, and robust capital adequacy (CAR ~19.7%) supports a positive re-rating outlook.

Final Take

HDFC Bank is entering a new growth phase after successfully navigating post-merger complexities. While margin pressures persist in the near term, the bank’s strong deposit franchise, improving credit growth, and technological edge position it well for sustained earnings expansion.

For investors, the stock offers a compelling risk-reward profile with clear upside visibility toward Rs 960, making it a strong candidate for long-term portfolio allocation.