HDFC Bank's incoming CEO Anup Bagchi faces a challenging transition as he takes charge from outgoing MD & CEO Sashidhar Jagdishan. According to reports from CNBC TV18, the stock has declined almost 44% since Jagdishan's appointment on October 27, 2020, despite the bank's significant business growth. The contrast between expansion and stock performance highlights the difficulty of translating scale into market returns, with the bank's stock gaining only 38% between Jagdishan's appointment and the HDFC Limited merger in July 2023. The latest session saw the stock slip near its 52-week low amid concerns over an internal investigation into senior executives.
Despite the stock decline, HDFC Bank has delivered substantial business growth under Jagdishan's leadership. As reported by CNBC TV18, quarterly profits have increased 2.6 times, advances have grown 3.1 times, and deposits have risen 2.7 times during his tenure. The merger with HDFC Limited created a much larger lender, but it also left the bank with a bigger loan book to fund, making the pace and composition of deposit growth central to its financial performance.
The bank faces significant funding pressures following the merger, with HDFC Bank's credit-deposit ratio peaking at around 110% after the merger. According to CNBC TV18, while this ratio has since eased, it remains significantly higher than when Jagdishan took charge. The ratio measures advances against deposits and highlights the pressure on the bank to mobilise deposits to support lending, making ensuring that deposits grow in step with advances a key priority for Bagchi.
HDFC Bank's net interest margin has fallen to an all-time low of 3.16%, even as asset quality remains strong and broadly stable. As reported by CNBC TV18, the decline in the share of low-cost CASA deposits adds to the pressure on margins, with the composition of deposits presenting another challenge. A lower share of low-cost deposits can put pressure on the bank's funding costs and profitability, making it crucial for Bagchi to improve margins while ensuring deposit growth keeps pace with lending.
Bagchi's challenge will be to improve margins while ensuring deposit growth keeps pace with lending, as reported by CNBC TV18. The bank needs to make better use of the scale created by the merger rather than rely on expansion alone to deliver stronger financial performance. Restoring investor confidence will be another important task, along with closing the gap with ICICI Bank where he previously worked. The test for Bagchi will be whether he can turn HDFC Bank's expanded balance sheet into better returns for the bank and its investors, particularly given the current internal investigation into senior executives and the cautious investor stance it has created.
