Private Banks Rebound: HDFC Bank Leads Sector

NSE: HDFCBANK picked up renewed institutional attention on July 1 as the Nifty Bank index rose 0.84%, outperforming a broader market dragged down by IT sector selling. Private sector banks, stuck in a holding pattern through most of 2023 and early 2024, appear to be entering a phase of accelerating credit growth and stabilizing net interest margins, a combination that tends to move stock prices decisively. The catalyst isn't a single event. It's a convergence. HDFC Bank has largely absorbed the operational drag from its April 2023 merger with HDFC Ltd, credit costs across the sector are moderating from post-COVID highs, and deposit growth is showing early signs of catching up with loan demand. That last point matters most for margins. HDFC Bank's Valuation Case After the Merger Overhang [HDFC Bank](/stock/HDFCBANK) trades at roughly 2.6x trailing book value as of late June 2025, a significant discount to its own five-year average of approximately 3.2x. The market priced in execution risk during the merger integration, and that discount is now arguably excessive. Return on assets, which dipped toward 1.7% post-merger, is tracking back toward the 1.9-2.0% range the bank historically delivered. If that trajectory holds through FY26, the current price-to-book multiple looks cheap. HDFC Bank's loan book grew at roughly 7% year-on-year in Q4 FY25, below sector peers. Management has signaled a deliberate strategy of prioritizing deposit accretion over loan growth, which is the right sequencing. A bank that chases loans without stable funding is building on sand. The patience may frustrate momentum investors, but it creates a cleaner balance sheet story for long-term holders. Sector Rotation: What's Moving ICICI, Axis, and Kotak [ICICI Bank](/stock/ICICIBANK) continues to trade at a premium to HDFC Bank, near 3.4x book, and it's earned that premium. ICICI's return on equity crossed 18% in FY25, and its retail credit quality has remained stronger than most peers throug...