When Anup Bagchi takes charge as MD and CEO of HDFC Bank on October 27, he will inherit one of India’s strongest banking franchises. But the challenge is not simply to sustain the bank’s size or keep its balance sheet growing. It is to show that this scale can translate into stronger earnings, better returns and a more compelling proposition for shareholders.
That is where the comparison with ICICI Bank becomes particularly relevant.
Over the past few years, ICICI Bank has emerged as a formidable competitor, delivering stronger earnings momentum and higher net interest margins. Its stock has also outperformed HDFC Bank, reflecting the market’s greater willingness to reward its operating performance. HDFC Bank, meanwhile, has faced questions over its deposit franchise, margin pressures and ability to generate adequate returns following its merger with HDFC Ltd.
Bagchi’s appointment adds an interesting dimension to this contest. He knows the ICICI ecosystem from the inside, having served as an executive director at ICICI Bank before becoming managing director and CEO of ICICI Prudential Life Insurance (now ICICI Life Insurance) in 2023. He now takes the helm at HDFC Bank at a time when investors are looking for measurable improvement rather than assurances about its long-term potential.
The question is whether he can accelerate that improvement and narrow the performance gap with a rival that has increasingly set the benchmark.
The earnings gap is becoming harder to ignore
HDFC Bank remains the larger franchise, with substantially higher absolute earnings. But the latest quarterly results underline the difference in momentum between the two banks.
In the September quarter of FY27, HDFC Bank reported net profit of ₹19,510 crore, up 4.7% year-on-year. Its net interest income (NII), the difference between interest earned on loans and investments and interest paid on deposits and borrowings, rose 9.7% to ₹34,620 crore.
ICICI Bank, by comparison, reported net profit of ₹14,843 crore, up 20.1% year-on-year, while NII increased 17.7% to ₹25,339 crore.
The distinction is important. HDFC Bank continues to generate more profit in absolute terms, but ICICI Bank’s faster growth points to stronger earnings momentum. For investors, the direction of travel can matter as much as the size of the business.
The margin comparison reinforces that point. HDFC Bank reported a net interest margin (NIM) of 3.16% in Q2 FY27, compared with 4.18% at ICICI Bank. NIM measures the return a bank earns on its interest-bearing assets after accounting for its interest costs, relative to its relevant asset base.
The two banks have different balance-sheet structures and business mixes, so their margin figures should not be interpreted in isolation. Even so, the gap highlights the pressure on HDFC Bank to improve the economics of its lending and funding operations.
For Bagchi, the task is not simply to grow the loan book. It is to ensure that incremental growth generates adequate income and shareholder returns.
Deposits: The problem beneath the headline growth
One of the biggest challenges facing HDFC Bank is the composition and cost of its deposit base.
In Q2 FY27, total deposits rose 18.8% year-on-year to ₹33.27 lakh crore, while gross advances increased 16.3% to ₹32.20 lakh crore. On the surface, both sides of the balance sheet are expanding at a healthy pace, with deposits growing faster than advances.
But the composition of that deposit growth matters.
CASA, or current account and savings account deposits, is generally a lower-cost source of funding than term deposits. In the September quarter, HDFC Bank’s CASA deposits grew 10.8% year-on-year, significantly slower than the 22.8% growth in term deposits. CASA accounted for 31.6% of total deposits.
When a bank relies more heavily on term deposits, it may have to pay more to attract and retain funding. If deposit costs rise faster than the yields on loans and investments, the pressure eventually shows up in margins.
This is particularly important for HDFC Bank because its balance sheet expanded substantially following the merger with HDFC Ltd in July 2023. The enlarged franchise created significant opportunities to cross-sell products, deepen customer relationships and expand lending. But it also increased the importance of mobilising deposits at a competitive cost to fund the larger balance sheet.
The merger changed the scale of the institution. The next phase is about improving the efficiency with which that scale is funded and deployed.
ICICI Bank provides a useful competitive reference point. Its average CASA ratio was reported at 35.8% in Q2 FY27, above HDFC Bank’s 31.6%, although the banks’ CASA measures and deposit movements need to be compared on a consistent basis. The difference nevertheless illustrates why the composition of liabilities is an important competitive variable.
Bagchi will need to strengthen HDFC Bank’s ability to attract primary banking relationships, grow savings and current account balances, and deepen engagement with existing customers. The objective is not simply to raise the CASA ratio as a headline metric, but to improve the overall cost and stability of funding while maintaining competitive deposit growth.
That is easier said than done. Banks compete aggressively for deposits, and customers are increasingly sensitive to the returns available on term deposits. Rebuilding a low-cost deposit franchise requires sustained customer acquisition and engagement, not a quick balance-sheet adjustment.
Can HDFC Bank arrest the pressure on margins?
The deposit mix feeds directly into another key challenge: net interest margin.
HDFC Bank’s NIM fell to 3.16% in Q2 FY27 from 3.26% in the previous quarter. The decline comes as the bank continues to balance lending growth, funding costs and the composition of its assets and liabilities.
A lower margin does not automatically mean that a bank is performing poorly. Margins can be influenced by the interest-rate cycle, changes in the mix of loans and deposits, liquidity conditions and the timing of repricing. But sustained pressure can constrain earnings growth, particularly when the balance sheet is expanding.
For Bagchi, the challenge is to improve the relationship between funding costs and the returns earned on assets. That may involve better deposit mobilisation, sharper pricing discipline, a more favourable business mix and greater efficiency in deploying capital.
ICICI Bank’s reported 4.18% NIM offers a useful reference point, but not a target that HDFC Bank can simply be expected to match. The two banks have different portfolios, funding structures and accounting considerations. The more relevant question is whether HDFC Bank can stabilise its margins and improve them over time while continuing to grow its franchise.
There is also a broader question around earnings quality. In Q2 FY27, HDFC Bank’s NII rose 9.7%, but net profit increased by just 4.7%. Changes in non-interest income, operating expenses and provisions can all affect how much core banking income translates into bottom-line growth.
Investors will therefore be watching more than NIM alone. They will want to see whether stronger core income translates into more consistent profit growth and whether the bank can improve returns without taking on undue credit risk.
Asset quality is holding up. The focus now shifts to returns
HDFC Bank enters Bagchi’s tenure with asset quality that remains broadly stable. Its gross non-performing asset (NPA) ratio stood at 1.11% in Q2 FY27, while the net NPA ratio was 0.37%.
That provides an important foundation. A bank seeking to accelerate growth cannot afford to do so at the expense of underwriting standards or future credit costs.
The challenge is to sustain this asset-quality performance while improving profitability. A larger balance sheet is valuable only if it generates adequate returns after funding costs, operating expenses, credit provisions and the capital required to support growth.
For investors, the distinction between growth and value creation is central to the HDFC Bank story. The bank has expanded substantially, particularly following the merger. But the market needs evidence that the enlarged institution can generate stronger returns on its assets and capital.
Return on assets, return on equity, the cost-to-income ratio and the trajectory of margins will be important indicators. So will the bank’s ability to grow loans and deposits without creating an imbalance between funding needs and lending opportunities.
Bagchi’s early performance will be judged on how these metrics move together, rather than on any one quarterly number.
The stock market has been less forgiving
The operational challenges have translated into a broader investor-confidence test.
HDFC Bank’s shares have underperformed ICICI Bank over the recent period, reflecting differing market assessments of their earnings momentum, profitability and execution. Recent market comparisons have shown HDFC Bank substantially weaker year-to-date, while ICICI Bank has delivered a positive return over the same period.
The precise performance depends on the cut-off date, and a like-for-like comparison should use the same dates and account for corporate actions. But the broader point is clear: HDFC Bank’s scale has not, by itself, been enough to secure the market’s confidence.
The merger was a landmark strategic move, combining HDFC Bank’s lending and distribution capabilities with HDFC Ltd’s housing-finance franchise. It also brought a larger balance sheet and a different funding profile. The market’s concern now is less about the logic of the combination and more about how effectively the bank can convert that scale into sustainable financial performance.
Investors will want greater visibility on deposit growth, margin recovery, earnings momentum and returns. They will also be watching execution and leadership continuity as the bank transitions to a new CEO and navigates changes across its senior management team.
For Bagchi, rebuilding confidence will require a sustained run of results that demonstrate progress. A strong statement of intent may set the direction, but only the numbers can establish whether the strategy is working.
Bagchi’s ICICI experience: An advantage, but not a ready-made playbook
Bagchi’s experience at ICICI Bank gives him a valuable perspective on the competitive landscape. He has seen the rival institution from a senior leadership position and subsequently led ICICI Prudential Life, giving him experience across banking and insurance.
That background could help him identify opportunities in customer engagement, product distribution, cross-selling and operational execution. But the HDFC Bank mandate comes with its own institutional realities.
HDFC Bank is a different franchise, with a different balance-sheet structure and a distinct set of post-merger priorities. Its task is not to become ICICI Bank, but to strengthen its own competitive position and deliver returns commensurate with its scale and market standing.
The first phase of Bagchi’s tenure will also be shaped by the need to understand the organisation, engage with stakeholders and establish his priorities. Investors are unlikely to expect every structural issue to be resolved immediately. They will, however, look for a clear set of priorities and evidence that the bank is making progress against them.
The most important early signals may be the trajectory of CASA deposits, the cost of funds, NIM, core earnings growth and returns. Consistency across these measures would do more to improve confidence than an aggressive growth target that comes at the expense of profitability.
The real test: Turning scale into superior performance
HDFC Bank does not need to prove that it can grow. Its balance sheet and market position already establish its scale. The harder task is to show that it can grow profitably, fund that growth efficiently and deliver more consistent returns to shareholders.
That means rebuilding low-cost deposit momentum, managing funding costs, stabilising margins and improving the conversion of core income into profit. It also means sustaining asset quality and giving investors clearer evidence of progress on returns and execution.
ICICI Bank has raised the competitive bar. Its recent earnings growth, stronger margins and stock-market performance have given investors reasons to favour its shares. HDFC Bank must now demonstrate why its own franchise can deliver a compelling outcome.
Bagchi’s experience gives him a strong understanding of the industry and of the competitor he must measure himself against. But his success will ultimately depend on the results he delivers at HDFC Bank.