HDFC Bank: How A Long-Term Favourite Turned Into A Wealth Destroyer

HDFC Bank’s fixed deposit has done better than its stock for investors over the long term. The bank currently offers FD interest rates of 6.15 per cent to 6.50 per cent a year for general citizens, depending on the tenure. Senior citizens can earn up to 7.10 per cent. HDFC Bank's shares, meanwhile, have fallen around 28 per cent so far in 2026.

The stock is down around 25 per cent over the past year. Over five years, it has lost nearly 10 per cent. Meanwhile, benchmark Nifty 50 has also delivered a negative 8 per cent YTD returns, and a 2.31 per cent on yearly basis. However, over the past five years, the benchmark has delivered nearly 39 per cent returns, outperforming its heaviest-weighted constituent significantly.

But the stock price alone does not tell the complete story. HDFC Bank issued a 1:1 bonus in 2025 and paid dividends every year during the period. Once these corporate actions are included, the five-year loss for a shareholder is smaller than the 10 per cent fall in the stock price.

What Went Wrong?

Managing Director and CEO Sashidhar Jagdishan announced on August 29 that he will step down when his current term ends on October 26, 2026. He also confirmed that he will not seek another term.

Jagdishan had been expected to seek a third term. His departure has therefore come as a surprise to investors and adds another layer of uncertainty around the bank's leadership.

The announcement came months after Part-Time Chairman Atanu Chakraborty left HDFC Bank abruptly in March this year. His suddent exit raised concerns among investors after he cited “ethical” differences.

An external review commissioned by HDFC Bank and completed in June, however, found no evidence to substantiate the governance issues raised by Chakraborty.

The bank now plans to fast-track the process of finding Jagdishan's successor.

Governance Concerns Have Added To The Pressure

The leadership changes have come at a time when HDFC Bank is already dealing with questions around governance and management decisions.

In July, the bank penalised Jagdishan and two other senior executives after an internal review found that employees involved in setting deposit rates for a state agency had engaged in "business overreach".

The board said the review did not find bad faith, personal enrichment or improper motive.

For investors, however, the sequence of events has done little to improve sentiment.

Adding further pressure on stock, on August 27, two US law firms filed a proposed federal securities class action lawsuit against the bank.

Following these, HDFC Bank's shares fell to a 31-month low of Rs 698.50 on September 1, 2026.

The Poor Numbers

The bank’s ongoing corporate governance issues and weak financial performance have added another layer of pressure, which is  a key concern for investors. Net interest margin fell to 3.26 per cent from 3.38 per cent in the March quarter. Other income declined 41 per cent year-on-year to Rs 12,821 crore, while operating profit fell 21 per cent to Rs 28,168 crore.

Asset quality also weakened slightly. Gross NPA rose to 1.17 per cent from 1.15 per cent in the previous quarter, while net NPA increased to 0.41 per cent from 0.38 per cent. Provisions stood at Rs 3,060 crore, down sharply from Rs 14,442 crore a year ago but higher than Rs 2,610 crore in the March quarter.

Foreign Investors Have Been Cutting Exposure

Foreign portfolio investors (FPIs) have also become less enthusiastic about the stock. FPIs held 41.82 per cent of HDFC Bank as of June 30, 2026, down from 47.67 per cent at the end of December 2025. Domestic institutional investors have moved in the opposite direction. Their holding increased to 41.92 per cent from 37.18 per cent during the same period.

What Should Investors Do

HDFC Bank's valuation has become cheaper after the fall in its share price, but analysts say that investors should rather wait to see better execution before accumulating the stock.

Vinod Nair, Head of Research at Geojit Investments, said HDFC Bank's valuation has become more attractive after the correction, but a re-rating will depend on execution rather than valuation alone.

"HDFC Bank's valuation has turned more attractive after the correction, but a re-rating hinges on execution rather than cheapness alone," Nair said.

He said the stock's discount to ICICI Bank reflects margin compression, an elevated credit-deposit ratio, slower retail growth and succession-related uncertainty. “ICICI Bank commands a premium due to stronger margin expansion and profitability,” he said. According to Nair, a recovery in net interest margin and a smooth leadership transition could improve HDFC Bank's earnings visibility and investor confidence. Experts believe that investors should stay away till the dust settles.