For most investors, key considerations while buying a bank stock include consistent compounding, asset quality, and a strong balance sheet. Over the last two decades, HDFC Bank has performed well across all these dimensions. Despite challenges such as tech disruptions, NBFC crises, demonetisation, Covid, and now a merger of historic scale, the bank has continued to report double-digit profit growth. We look at how HDFC Bank has managed to scale without slipping, and why, for investors with patience, it may still be among the most compelling long-term bets. Post-Covid, post-merger, and still on cruise control? Not quite If you only glance at HDFC Bank's recent stock chart, you might think it's been business as usual. But under the hood, the last few years have been anything but… Let’s rewind to early 2020. The pandemic shook up every corner of the economy: loan growth slowed, asset quality came under pressure, and the bank had just seen a change in leadership for the first time in decades. Then, just as things began to stabilise, came the biggest pivot in its history: the merger with HDFC Ltd, the very parent it once depended on for home loan referrals. And yet, the numbers didn’t crack. From FY21 to FY24, HDFC Bank’s reported net profit nearly doubled from Rs 31,117 crore to Rs 60,812 crore. EPS rose 56%, even after absorbing the entire HDFC Ltd balance sheet. Loan book surged 55% year-on-year in FY24, reaching over Rs 25 lakh crore. Gross NPAs? 1.13% as of Q4 FY25. (Note: FY24 figures include the impact of the HDFC Ltd merger.) Even the merger, expected to bring short-term integration issues, was executed smoothly. While the CASA ratio fell (as term deposits from HDFC Ltd came in), and NIMs compressed slightly, the bank didn’t lose its grip on cost control or credit quality. Instead, it turned its newly bulked-up balance sheet into a growth engine, particularly in mortgages and retail lending. How HDFC Bank kept winning while others were catching up Just like Maruti realised it couldn’t rely on small cars forever, HDFC Bank too knew that sticking to its traditional model wouldn’t cut it in a changed world. So while most saw the merger as the story, the real shift was in how HDFC Bank started operating after it. Let’s break down the four key levers of that transformation: 1. The retail lending machine: Bigger, deeper, smarter If there's one thing the merger did overnight, it was to turbocharge HDFC Bank’s retail dominance. With HDFC Ltd folded in, the bank didn’t just inherit a mortgage book, it got a built-in cross-sell opportunity: home loans, insurance, mutual funds, credit cards, all under one roof. From FY21 to FY24: Retail loans jumped by over 100%, making up nearly 57% of the total loan book. Home loans became a larger chunk, bringing in longer tenure, lower-risk borrowers. Unsecured lending (cards, personal loans) grew at a healthy clip but cautiously. It’s not just volume; it’s quality. More salaried customers, more home-backed loans, and better collections. 2. Deposits before loans: Playing the long game Post-merger, one thing was clear: loan growth had outpaced deposit growth, and that had to be fixed. Here’s what that meant: A sharper push on retail deposits, even if it meant higher interest outgo. Accelerating branch expansion, nearly 1,000 new branches in FY24 alone, especially in Tier 3 and Tier 4 cities. Doubling down on digital accounts, including salary and small business accounts via PayZapp, UPI, and API integrations. While the CASA ratio dipped from ~48% to 38%, the absolute deposit base soared to nearly Rs 24 lakh crore. This deposit-first strategy gives the bank cheaper funds in the long term and helps prepare for the next wave of lending. 3. Digital scale meets distribution muscle HDFC Bank has always been a distribution powerhouse. But post-2020, the game shifted to a digital scale. And here, too, the bank has been adapting. Over 95% of transactions now happen digitally. The new digital stack (built post-Covid) now powers mobile-first onboarding, loan approval, and servicing. Its API banking infrastructure is quietly becoming the back-end for startups, NBFCs, and fintechs. 4. The cross-sell engine: Exporting more from the same customer You could think of exports for Maruti. For HDFC Bank, it’s cross-sell. Post-merger, every customer of HDFC Ltd is now a full-fledged bank customer. That opens up: Mutual funds (via HDFC AMC) Life and general insurance (via HDFC Life and Ergo) Credit cards, savings accounts, and auto loans. In FY25, cross-sell penetration jumped significantly. The goal? Turn every mortgage customer into a lifetime client across products. The result? Higher wallet share, better retention, and low-cost growth. Together, these four levers — retail lending, deposit deepening, digital expansion, and cross-sell monetisation — are helping HDFC Bank grow in scale without compromising on quality. What about the others? Why HDFC plays a different game ICICI Bank has been on fire. It’s aggressive, has grown faster in corporate lending, and is pushing hard into digital. Axis Bank has cleaned up its books and is now showing solid ROEs. Kotak is lean, rich on CASA, and runs a tight balance sheet. So, where does HDFC Bank stand? Right in the middle — but in a league of its own. Metric (Q4 FY25) HDFC Bank ICICI Bank Axis Bank Kotak Bank ROE ~14.4% ~17.9% ~16.9% ~12.9% ROA ~1.9% ~2.4% ~1.8% ~2.4% NIM ~3.5% ~4.3% ~3.9% ~4.9% Gross NPA ~1.33% ~1.67% ~1.28% ~1.42% CASA Ratio ~35% ~42% ~41% ~43% Market Cap ~₹15 lakh Cr ~₹10 lakh Cr ~₹4 lakh Cr ~₹4 lakh Cr Source: Company filings, Q4 FY25 data HDFC Bank doesn’t always lead every individual metric. But it’s the only one that leads on consistency, size, and stability, all at once. Its asset quality is better than everyone else’s. Its profit pool is the biggest by far. Its network and brand recall remain unmatched across urban and rural India. And that’s why, despite others gaining market share, it continues to command a premium. Valuation: Why HDFC Bank will always look ‘expensive’ — and why that’s okay Today, HDFC Bank trades at around 20-21x FY25 earnings, which feels rich, especially when some of the other growing private sector banks trade at around 15-17x. So the question comes up: Why pay more for HDFC Bank? Because the P/E ratio, on its own, doesn’t tell the full story. Here’s why: 1. Consistency commands a premium HDFC Bank is one of the few Indian companies with a 25+ year history of never missing a beat. It has shown up with profits and growth through every macro event, be it 2008, the 2013 taper tantrum, demonetisation, Covid, or the merger. In markets, reliability is rare, and rare things are expensive. 2. It generates more profit per rupee of capital Yes, ICICI has grown faster in recent years. But HDFC’s balance sheet quality means it can deliver strong profits without taking undue risk. Over a 10-year cycle, that matters more than quarterly loan growth. Even with modest NIMs, its absolute profit is highest among banks. 3. P/E doesn’t capture the synergy runway Post-merger, HDFC Bank is in the middle of a multi-year integration phase. Costs are high today, but synergies from cross-selling, tech consolidation, and balance sheet optimisation haven’t fully played out. If you price it only on today’s earnings, you’re missing the real compounding that's building underneath. 4. Quality always looks expensive… until it doesn't In 2008, HDFC Bank traded at ~25x. In 2013, at 28x. In 2018, at 30x. It still delivered. That’s because its earnings keep catching up to the price and then going further. So… where does that leave HDFC Bank? In a market that’s constantly on the lookout for the ‘next big thing’, it’s easy to overlook what’s hiding in plain sight. HDFC Bank today isn’t the scrappy compounder it once was. It’s larger, more complex, and facing a very different set of challenges, from integrating a massive merger to defending market share in a fiercely competitive landscape. And yet, many of the qualities that once made it the gold standard in Indian banking, which is consistency, discipline, and asset quality, still seem intact. Does that guarantee future outperformance? Not necessarily. But it raises a quiet question: if the search is always for the next HDFC Bank, what do we make of the fact that this one hasn’t gone away? Maybe the more useful lens now is not whether HDFC Bank can repeat its past, but how it chooses to define the next phase. And for investors watching from the sidelines or holding on for the long haul, that evolution might be worth observing, on its own terms. Note: This article relies on data from annual and industry reports. We have used our assumptions for forecasting. Parth Parikh currently heads the growth and content vertical at Finsire. He holds an FRM Charter and an MBA in Finance from Narsee Monjee Institute of Management Studies. Previously, he held research positions at various companies. Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.
