HDFC Bank shares, currently trading at decade-low multiples, present a favorable risk-reward scenario according to Nomura. The foreign brokerage has upgraded its recommendation to 'Buy' for the Indian private lender, setting a target price of Rs 950. This comes after HDFC Bank's stock has seen a 20 percent decline over the past year, significantly underperforming the Nifty Bank index's 3 percent rise.
FCNR(B) Scheme: A Potential Catalyst
Nomura identifies the Reserve Bank of India's (RBI) FCNR(B) (Foreign Currency Non-Resident (Bank)) scheme in 2026 as a pivotal factor that could resolve several long-standing concerns weighing on HDFC Bank. These issues, which Nomura views as interconnected, include lagging deposit growth, a credit-deposit (CD) ratio above management's guidance, a low Liquidity Coverage Ratio (LCR) compared to peers, and a higher reliance on short-term wholesale funding.
The brokerage firm projects that HDFC Bank could capture approximately 15 percent of the total FCNR flows, equivalent to about 3 percent of its current deposit base. This influx of NRI deposits, particularly long-tenor funds, is expected to:
- Boost Deposit Growth: Pro-forma deposit growth could re-rate from 15 percent to 18 percent in FY27, without necessitating a domestic rate war.
- Improve LCR: Loan growth, which was at risk of moderation, can improve to 15 percent while keeping the LCR comfortable at 115 percent.
- Ease NIM Pressure: Substituting short-term CD funding with long-tenor NRI deposits would reduce reliance on wholesale money, thereby alleviating pressure on Net Interest Margins (NIMs).
Addressing Core Balance Sheet Concerns
Nomura highlighted that HDFC Bank has been one of the most active participants in the CD market over the last 12 months to bridge the gap between credit and deposit growth. While a short-term fix, this strategy added to funding costs and kept NIM pressure elevated. The FCNR(B) scheme, if effectively capitalized on, could address these balance sheet overhangs more swiftly than market expectations.
Remaining Risks: CEO Succession
Despite the positive outlook on financial metrics, Nomura points to CEO succession as a more substantive risk. The incumbent CEO's term is set to expire in October 2026, with no clear indication of renewal. Recent press coverage concerning governance issues also adds to near-term investor caution.
Ultimately, Nomura's analysis suggests that while valid concerns have impacted HDFC Bank shares, the impending FCNR(B) opportunity could significantly de-risk the stock and make it a standout beneficiary among large private lenders.