HDFC Bank's Merger Is Done. Can Anup Bagchi Unlock Its Full Potential?

Anup Bagchi takes over as Managing Director and CEO of HDFC Bank on 27 October 2026 for a three-year term, succeeding Sashidhar Jagdishan. The bank he inherits has grown considerably larger since its merger with HDFC Ltd in July 2023. Its profitability has not grown with it. The task before Bagchi is to close that gap.

In the week HDFC Bank completed its merger with parent HDFC Ltd in July 2023, the stock touched ₹1,744.70. It was the high-water mark of a deal sold to shareholders as the creation of a bank that could do everything — lend on homes, gather deposits, sell insurance, run a wealth franchise — under one roof.

The stock does not trade there anymore. HDFC Bank issued a 1:1 bonus in August 2025, which halves the comparable price. Kush Gupta, Director of SKG Investments and Advisory, puts the bonus-adjusted peak at roughly ₹872.

Notably, the bank closed at ₹692.60 on October 8, while Motilal Oswal's company update dated 4 October 2026 uses a current market price of ₹721; Gupta separately cites ₹748 as of 22 September 2026.

The stock sits below where it stood when the merger closed. Over the past year, it is down 25% and over five years 8%, according to Motilal Oswal. In the same period, the balance sheet has grown about 78%, by Gupta's estimate. Motilal Oswal puts market capitalisation at ₹11,119.9 billion. That is the puzzle Bagchi inherits.

The Promise

When the merger was announced in April 2022, the case rested on three ideas, as Gupta lays them out. Home loans would rise from 11% of the bank's loan book to roughly a third, a large, low-risk retail asset that would sit on the balance sheet for decades.

Second, about 70% of HDFC Ltd's borrowers did not align with HDFC Bank; they paid EMIs but kept salaries, savings and cards elsewhere, and the merger would bring those households inside the walls.

And third, HDFC Ltd's expensive bond funding would be replaced by HDFC Bank's cheap deposits. Of the three, the first two have moved. The third has not.

The Bill

Net interest margin fell from 4.1% before the merger to 3.26% in Q1 FY27. The CASA ratio, the share of current and savings accounts in deposits, the cheapest money a bank can get, dropped from 44% to 32.3%. Motilal Oswal records CASA at 32.3% as of June 2026 and NIM at 3.26%.

For shareholders who bought HDFC Bank for its premium franchise, this is unfamiliar territory. NIM in the low threes is not a cyclical dip for this bank. The mortgage side has done what it promised: the share of incremental home loan disbursals rose to about 18-20% after the merger, Gupta says, and over 95% of new-to-bank home loan customers now open savings accounts. But the CASA ratio has not moved, and that is where the merger's economics actually live.

Why The Arithmetic Was Always Hard

Part of the margin compression is structural. HDFC Ltd, as a standalone lender, earned roughly a 1.9% return on assets and about a 13% return on equity, Gupta noted. HDFC Bank's FY23 ROA was 1.9% on a full-year basis, per Motilal Oswal; Gupta cites about 2.1% for Q4 FY23, a quarterly measure. Merging a lower-return lender into a higher-return one lowers the blended number. That is mathematics, not mismanagement.

Gupta also states that the RBI did not grant phase-in relief on cash reserve ratio and statutory liquidity ratio requirements for the acquired book. That claim is his, and requires verification against the RBI's July 2023 merger approval conditions before publication.

The funding structure added its own drag. Motilal Oswal's report shows borrowings at 18% of the balance sheet in FY24, easing to 14% in FY25 and 11% in FY26, projected at 10% in FY27E and 9% in FY28E. Gupta frames the starting point higher, at 21% of liabilities, and puts the industry norm at 5-6%; the 21% figure does not appear in the Motilal Oswal report.

What Replaced The Bonds

The bank has been gathering deposits faster than the system. Deposits grew 18.8% in the September quarter, ahead of advances at 16.3%, with over ₹1.5 lakh crore mobilised in one quarter, said Sonam Srivastava, Founder and CEO of Wright Research.

Borrowings have fallen to about 11% of liabilities, she says, consistent with Motilal Oswal's FY26 figure. The credit-deposit ratio has come down from what she puts at around 110% to the mid-90s. Motilal Oswal's data shows 104.4% in FY24 and 94.6% in FY26, though the same report's commentary says the ratio "touched 110% at its peak", a discrepancy inside the brokerage's own pages.

The problem is not volume. It is price. Most replacement funding has come from time deposits, Srivastava notes, and in the recent quarter a significant chunk came from FCNR(B) mobilisation under the RBI's swap window. That money is cheaper than the bonds it replaced and helps liquidity ratios, but it is not CASA and does not restore the pre-merger cost of funds.

Gupta puts the arithmetic bluntly. Another ₹40,000–50,000 crore of old borrowings matures over the next two years, and at a saving of 100–125 basis points that is worth only about ₹400–600 crore a year, roughly 1 to 1.5 basis points of NIM. "The real lever is CASA," he says. Moving from 32% to the bank's 38% target would add about 12 basis points of NIM, assuming a three-percentage-point cost gap between term deposits and savings deposits.

The September quarter's mix shows the distance still to travel: CASA grew 10.8% while time deposits grew 22.8%, according to Srivastava. Separately, Gupta notes that in Q1 FY27, April to June 2026, term deposits grew 17.4% while CASA grew 9.4%. His verdict was that "This is not monetisation. It replaces one expensive source of funding with another." He also states that the board penalised the CEO and three others over the pricing of large deposits.

A Rising Tide

Some of the deposit growth is system-wide. While citing RBI data, Nomura's India Banks report records system credit growth of 18.1% and domestic deposit growth of 17.3% year-on-year, against 18.3% and 14.7% on 15 August. The credit-deposit gap narrowed from roughly 360 basis points to about 80, pulling the system ratio down to 80.8%.

Much of that came from FCNR(B) inflows. Nomura notes the system liquidity surplus eased to about ₹4.7 trillion on 30 September from ₹6.7 trillion on 31 August, after peaking near ₹9.85 trillion on 15 September. The RBI ran heavy variable rate reverse repo operations and announced ₹1 trillion of open market operation sales in three tranches.

Nomura raised its FY27 system loan growth forecast to about 17% from 15%, but warned that "margins should remain under pressure in the near term, as banks carry surplus FCNR(B)-led liquidity in low-yielding assets," expecting relief by Q3 FY27 as the money is deployed.

Read against HDFC Bank's own numbers, it is not underperforming the system on deposit growth but running roughly in line with a system-wide surge, and paying for it in mix.

The Man And The Mandate

Interestingly, Bagchi is not a career HDFC Bank insider. He spent more than three decades at the ICICI Group. He joined in 1992 and worked across retail banking, corporate banking, investment banking and treasury.

From 2011 to 2016 he was MD and CEO of ICICI Securities, building out ICICI Direct and expanding wealth and distribution. From 2017 to 2023 he was Executive Director at ICICI Bank, heading retail banking before moving to wholesale banking, transaction banking and markets. In June 2023 he took over as MD and CEO of ICICI Prudential Life Insurance.

He succeeds Sashidhar Jagdishan, whose term ends 26 October 2026. The RBI has approved a three-year term starting 27 October 2026.

Motilal Oswal's note says his experience will enable him "to lead India's largest private bank with leadership across BFSI segments," crediting his ICICI record with building retail businesses while maintaining credit and cost discipline.

The brokerage maintained Buy with a target of ₹925, built on 1.8 times March 2028 estimated adjusted book value plus ₹128 for subsidiaries, 28.3% upside against its own ₹721 reference price, not against Gupta's ₹748.

Nomura went further, adding HDFC Bank to its top picks, a reversal, since it had excluded the stock on succession concerns. "RBI's approval of Anup Bagchi as MD & CEO from 27-Oct-26 removes the succession overhang on which we had excluded it," the report states, "and an external appointment opens scope for a strategic reset."

The Real Unfinished Business

The balance sheet side is largely sorted, Srivastava argues. The customer side has barely started. "HDFC Bank took on a mortgage book that was always more of a lending relationship, mostly funded by bonds, and not really tied to the customer's everyday banking," she says. At the merger, only about three in ten old HDFC Ltd home loan borrowers banked with HDFC Bank.

"That gap is the big unfinished opportunity. Mortgages are usually the longest and most trusted link a household has with a lender, but the bank is still only halfway through turning that into salary accounts, transaction balances, cards, insurance, and investments."

New home loan customers are converting; over 95% open savings accounts, per management, but the legacy book is where the economics sit. "The borrowings runoff will happen on its own, more or less. It's the customer franchise that really needs a CEO's attention," Srivastava adds.

Mortgages are about 30% of the book: several million households, higher incomes, long tenures. She states, "Every percentage point of that base that shifts its main account to the bank is worth a lot more than a new customer, because these people are already underwritten and already engaged."

And the cross-sell pieces are in-house, HDFC Life, AMC, Securities, ERGO, so the economics stay within the group. Her caveat is the one that matters: cross-sell in Indian banking "is always a slow burn. This is a five to seven year story, and Bagchi's term will cover the middle stretch, not the finish line."

What Management Controls

NIM at 3.26%, in Srivastava's reading, "is pretty much at the bottom of the bank's historical range, and that's mostly a funding mix issue, structural and specific to the bank." Borrowings runoff and CASA recovery can each add 10 to 25 basis points over a few years, "and that's something management can actually control." The rate cycle "can swing margins by a similar amount in either direction within a few quarters, which is out of their hands."

Cross-sell, she argues, moves ROA rather than NIM, because fee income flows to the bottom line without needing margin. She puts ROA at 1.85% against a pre-merger norm of 1.9 to 2.1%; Motilal Oswal shows FY26 at 1.8%, and FY27E and FY28E at 1.7%.

The ICICI comparison will not go away. In Q4 FY23, ICICI's NIM was already 4.90% with ROE of 18.9%, as per Gupta; HDFC Bank's was 4.1%. By Q1 FY27, ICICI reported NIM of 4.36% and ROE of 17%, against HDFC Bank's 3.26%.

Gupta's reading is that the pre-merger gap of about 80 basis points has widened to roughly 110, and that the merger explains only about 30 basis points of it. The rest, he argues, is ICICI executing better, and a mortgage book earning about 13% ROE has permanently lowered HDFC Bank's ceiling.

What Is Priced In

Gupta's framework: the stock trades at about 2.0x book, forward below 2x, against about 3x for ICICI and a 10-year average of 3.3 times. Assuming an 11.5% cost of equity and 8% long-term growth, 2.0 times implies the market expects a sustainable ROE of about 15%. If ROE reaches 17%, fair value is about 2.6 times, roughly 28% upside. If it stays at 14%, fair value is about 1.7 times, roughly 15% downside. "Rerating potential exists, but it depends on CASA rising. Bond runoff will likely not deliver it."

Srivastava names four dials: CASA back towards the mid-30s and growing at least as fast as total deposits; NIM above 3.5% with borrowings at 6-7% of liabilities; ROA at or above 2% with fee income outpacing NII; and loan growth at or above the system without the credit-deposit ratio creeping up. "If all four move together, the merger has done its job and the bank earns its historical premium again. But if NIM only recovers because rates move, or CASA stabilises just because time deposit rates fall, that's just a cyclical recovery, not a real monetisation of the merger."

The Middle Stretch

Motilal Oswal expects operating performance to improve from FY28, projecting a 14% loan CAGR over FY26–28E, a deposit CAGR of about 15%, and PAT growth recovering to 13% year-on-year by FY28E against a 9% average over FY24–27E. Nomura's inclusion of the stock in its top picks is the more immediate signal: a brokerage that had excluded HDFC Bank over succession risk has put it back.

Neither report claims the work is done. The balance sheet is repaired, the borrowings are running off, and the deposit engine has been rebuilt, though not yet at the right price. What remains is the slowest part: turning millions of mortgage customers into banking customers, and turning scale into return. Bagchi has three years. As Srivastava puts it, that covers the middle stretch, not the finish line.