Why HDFC Bank's Share Price Fell Below ₹1,500 On Wednesday

HDFC Bank shares fell on Wednesday as reports of a restructuring in the bank’s top management following its mega-merger failed to inspire confidence in investors. This would mark the second reorganization since Sashidhar Jagdishan assumed the role of managing director and CEO in October 2020, succeeding Aditya Puri.

What Happened: The bank conveyed a number of management changes to its employees in a memo on October 1, Bloomberg reported. The bank is placing a strong emphasis on technology for expanding services, with IT and digital functions under the leadership of Ramesh Lakshminarayanan, now reporting directly to CEO Jagdishan.

Meanwhile, Ashish Parthasarthy, a seasoned banking professional, will oversee the critical retail branch business, including deposits and product distribution.

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Parthasarthy is said to be implementing a geographical restructuring of the retail branch business to enhance expansion and product management. Smita Bhagat and Sampath Kumar will likely jointly lead this initiative, with Bhagat previously handling various leadership roles at the bank and Kumar managing liability products, third-party products, and non-resident business.

Brokerage Jefferies said this management revamp may aim to enhance execution to drive growth in mortgages, where Arvind Kapil will get the exclusive charge, and optimise branch ramp-up, where responsibilities will be split geographically. The research firm also said ramping up the lender’s deposits and housing book will be key to growth and investor comfort. The brokerage house maintained its “buy” rating on the stock and raised its target price to ₹2030 per share, a 33% premium to its current market price.

Following the merger of HDFC and HDFC Bank, analysts anticipate that HDFC Bank may witness a short-term decline in net interest margin (NIM), net worth, and asset quality due to the merger with parent company HDFC. CFO Srinivasan Vaidyanathan has previously acknowledged the potential for a 25 basis point NIM contraction owing to increased cash reserve ratio and excess liquidity post-merger.

This could result in lower earnings for the bank in the second quarter, with the merged entity’s margin estimated at 3.7%-3.8% in June, down from the bank’s previous standalone margin of 4.1%. Analysts at Macquarie suggest that this may impact the bank’s near-term return on assets.

Price Action: HDFC’s share price tanked around 1.2% at open on Wednesday but clawed back some losses to trade 0.73% lower at ₹1497 shortly after open.

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