HDFC Bank shares at decade-low multiples: Nomura says risk-reward turns favourable

FCNR(B) 2026 is a potential blessing for HDFC Bank Ltd, Nomura said on Monday as it believes the risk-reward on the stock, which is trading at decade-low multiples, has turned favorable. The foreign brokerage suggested 'Buy' and a target of Rs 950 on HDFC Bank.

Nomura said the market concerns that have weighed on HDFC Bank of late are not independent problems. Deposit growth lagging expectations, credit-deposit (CD) ratio above management's guidance, Liquidity Coverage Ratio (LCR) the lowest among large private peers, and a higher reliance on short-term wholesale funding are the same problems viewed from different perspectives, it said.

"The RBI's FCNR (B) scheme could address all these in a single window, making HDFCB a potential standout beneficiary in our coverage. The bank could garner 15 per cent of overall FCNR flows, in our view – equivalent to 3 per cent of its current deposit base," Nomura said.

The foreign broking firm noted that the ask on deposit growth was the highest for HDFC Bank among the large private lenders. To bridge the gap between credit and deposit growth, the lender has been one of the most active participants in the CD market over the past 12 months. Nomura called it a short-term fix that was adding to funding costs and keeping NIM pressure elevated. 

"The concern was that without a meaningful acceleration of deposits, the bank would either have to keep paying up or slow loan growth," Nomura said as it suggested a target of Rs 950 on HDFC Bank. 

HDFC Bank shares have fallen 20 per cent in the past one year against a 3 per cent rise in the Nifty Bank. Nomura said the concerns were valid. FCNR, if the bank capitalises on the opportunity, can address the key balance sheet overhangs faster than the market expects, it said. 

"The more substantive risk is CEO succession, with the incumbent's term expiring in October 2026 and no clarity on renewal. Recent press around governance, adds to near-term investor caution," it said.

Nomura said pro-forma deposit growth could re-rate from 15 per cent to 18 per cent in FY27, meet through the NRI channel, without a domestic rate war. 

"Loan growth, which was at risk of moderating, can improve to 15 per cent, keeping LCR comfortable 115 per cent. And, as long-tenor NRI deposits substitute short-tenor CD funding, the elevated reliance on wholesale money that has characterised the past year reduces – easing the risk of further downward pressure on NIMs," Nomura said.