A 25% year-to-date decline, and still falling, marks a turbulent phase for HDFC Bank. India’s largest private lender has been caught in a convergence of global and domestic shocks, unsettling investors.

The trigger was twofold.

First, a global energy shock in March 2026, sparked by the Iran conflict, sent tremors across global equity markets. HDFC Bank’s stock dropped 12% in the first half of the month.

Then came an unexpected internal development. On March 17, part-time Chairman and Independent Director Atanu Chakraborty resigned during what was otherwise a routine board meeting. The disclosure on March 18 triggered a further 12% decline over three trading sessions.

Is the market overreacting to the news? Not exactly. HDFC Bank has seen similar 15-20% corrections five times in the past six years.

Leadership uncertainty typically weighs on financial stocks in the short term. However, historical patterns suggest recovery once leadership stabilises and performance metrics improve.

Let’s take the example of ICICI Bank. Its stock fell 26% in the first half of 2018 amid corporate governance concerns but rebounded strongly thereafter, gaining 140% between December 2016 and December 2019.

Along with ICICI Bank and State Bank of India, HDFC is classified as a Domestic Systemically Important Bank (D-SIB) by the Reserve Bank of India, which means these institutions are “too big to fail” because of their size, interconnectedness, and complexity.

HDFC Bank’s footprint is extensive. It owns 5% of total banking branches, has 11% share of banking deposits, and collected 25% of direct taxes, 17% of GST, and 18% of customs and excise duty in FY25. It had 20% share in real estate financing, a significant share in Bullion imports, insurance, and assets under management.

Its weight in the NIFTY50 index also means broader market implications. Between March 18 and 23, the index fell 5.2%, partly dragged down by HDFC Bank’s decline.

The timing of the chairman’s exit is particularly sensitive.

HDFC Bank is still navigating post-merger integration challenges. Its loan-to-deposit ratio (LDR) remains elevated at over 100%.

Leadership changes: Keki Mistry has been appointed interim chairman, while the Nomination and Remuneration Committee is set to meet in April to discuss the appointment of a new chairman and the reappointment of CEO Sashidhar Jagdishan, whose term ends in October 2026.

Leadership continuity will be closely watched, especially given the bank’s previous transition in 2020, when long-time CEO Aditya Puri stepped down.

Performance metrics: Investors should keep an eye on the asset quality, liquidity, and net interest margins (NIM).

The latest quarterly earnings released in January highlight concerns around deposit growth and operating costs, keeping net interest margin (NIM) at 3.35%. HDFC’s deposit growth increased 11.56%, higher than that of SBI and ICICI. Yet deposits were weak as LDR was nearly 99% after falling to 96.5% in FY25.

A high LDR signals tighter liquidity, which could hurt margins and slow loan growth, thereby forcing banks to raise deposit rates, increasing funding costs and compressing NIM. It can also constrain credit growth.

However, HDFC Bank is not a credit risk as it is supported by regulatory buffers such as statutory liquidity ratio (SLR) and liquidity coverage ratio (LCR).

HDFC Bank aims for its loan growth to normalise in FY26 and exceed the system in FY27, while reducing the LDR to 96% in FY26 and 90% in FY27.

Before the part-time chairman’s resignation, analysts were bullish on HDFC Bank even though there were concerns around high LDR and cost. The quarterly ratios keep changing as the bank balances both growth and risk. At the time of the Q3 FY26 earnings release, the stock was trading at Rs 931, and analysts expected a 20-30% growth in share price.

Brokerages have not revised their price target as uncertainty around the leadership makes it difficult to quantify the impact.

However, long-term investors view this as a buying opportunity as HDFC Bank’s valuations fall below its 10-year median. The stock trades at a price-to-equity of 16.1x below the 23.6x median and a price-to-book ratio of 2.1x below the 3.6x median.

There will be business challenges, but long-term secular growth remains intact. It would be interesting to see how the next six months unfold for India’s second-largest bank.

Note: We have relied on data from http://www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

Puja Tayal is a financial writer with over 17 years of experience in the field of fundamental research.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article.

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