Shares of HDFC Bank extended rally for the seventh day in a row on Tuesday, March 25, surging to the highest level in the current calendar year (CY25). The banking stock ended the day at Rs 1,821.45 apiece on the NSE, with 1.19 per cent gains. In the early session, it zoomed as much as 2.4 per cent to touch the day’s high at Rs 1,843.70.
Over the past seven sessions, India’s largest private lender by market capitalisation has rallied 6.73 per cent.
Why HDFC Bank Rallied Today?
Today’s rally in HDFC Bank shares came after the Reserve Bank of India (RBI) announced changes to the Priority Sector Lending (PSL) guidelines on Monday.
Under the new rules, the RBI has increased the limits for housing loans that qualify for PSL. In metropolitan cities, the limit is now Rs 50 lakh, up from Rs 35 lakh. For towns with populations between 1 million and 5 million, the limit has been raised to Rs 45 lakh from Rs 25 lakh.
In towns with populations below 1 million, the limit is set at Rs 35 lakh. However, loans for bank employees and those backed by long-term bonds are not included. Loans for government projects like slum rehabilitation or those with at least 50 per cent Floor Space Index (FSI) for homes under 60 square metres of carpet area will still qualify.
HDFC Bank Nearing Record High
At Tuesday’s closing price, HDFC Bank shares are just Rs 58.55, or 3.21 per cent shy of hitting a new record high. Previously, it had touched a record high of Rs 1,880 on December 5, 2024.
On a year-to-date (YTD) basis, the stock has yielded a modest 1.87 per cent return, and over the past year, it has rallied 27.4 per cent, despite weakness in the broader market. Meanwhile, benchmark indices – Sensex and Nifty 50 – surged around 7.5 per cent each over the last year, significantly underperforming HDFC Bank, the highest weighted stock in both the index.
Jefferies Bullish on HDFC Bank
Meanwhile, Jefferies, in its report dated March 23, provided an upbeat outlook on HDFC Bank. The brokerage said, the bank is successfully growing its share of deposits, which are increasing at 15 per cent compared to the sector’s 11 per cent, aided by new branch openings and ramp-up of older ones. Regarding loan growth, while it has been slower recently, Jefferies expects HDFC Bank to catch up with the sector’s average growth by FY25. HDFC Bank is confident about growing secured and unsecured personal loans, the international brokerage said.
The bank has also reduced its loan-to-deposit ratio (LDR) by about 12 percentage points over the past 12 months, bringing it down to 98%. Going forward, it may continue to lower the LDR, but at a slower pace over the next two years, said Jefferies.
In the housing finance space, competition has increased, particularly with public sector banks offering lower interest rates. Despite this, HDFC Bank’s integration with HDFC Ltd. has gone smoothly, and the merged structure is allowing the bank to cross-sell its banking products—like deposits, loans, and credit cards—to mortgage customers more effectively.
From a regulatory perspective, Jefferies noted that the regulator seems more comfortable with HDFC Bank’s growth trajectory, although it's still uncertain how individuals will use their tax savings. The bank’s cost-to-income ratio is expected to improve further as it continues to ramp up its branch network.
While HDFC Bank’s deposit mobilisation remains strong, the bank’s interest rates are high, and some moderation in rates is expected starting in April, said Jefferies, while adding, "It will be pertinent to watch actions of PSU banks after year-end build-up."
The brokerage also noted that the bank's asset quality has been faring well across most segments.
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