HDFC Bank (HDB) Shares Plunge 0.58% to Multi-Year Low on Weak Earnings, Legal Scrutiny

HDFC Bank (HDB) shares fell 0.58% on September 24, marking the fifth consecutive day of losses, with the stock declining 4.20% over five days. The price dipped to its lowest level since April 2020, with an intraday drop of 1.30%, reflecting investor unease amid a confluence of financial and governance challenges.

Weak third-quarter earnings were a primary catalyst for the decline. The bank reported a net interest margin (NIM) of 3.4% as of December 2024, below expectations, while net interest income grew by just 4% quarter-on-quarter. Elevated provisions surged 50% to ₹4,216.6 crore, driven by credit risks and merger-related liabilities, which pressured profitability despite a modest 2.5% sequential rise in net profit to ₹16,373 crore. Deposit growth also lagged, with ₹41,000 crore added in Q3, falling short of internal targets and raising concerns about liquidity constraints.

Legal controversies further compounded the sell-off. A high-profile FIR was filed against CEO Sashidhar Jagdishan, alleging ₹2.05 crore in bribes to harass a trust official. The bank denied the allegations, calling them "malicious and baseless," but the case triggered regulatory scrutiny under RBI’s "Fit and Proper" guidelines. This raised questions about governance standards, with analysts noting the reputational damage and potential regulatory risks. The incident amplified investor fears about operational stability in a sector already grappling with credit and liquidity pressures.

Broad market sentiment also worsened, with the Sensex and Nifty dropping 2.25% and 2.15%, respectively. Systemic weakness, fueled by macroeconomic uncertainties and sector-wide skepticism, exacerbated HDB’s decline. Negative media coverage highlighted the interplay of earnings shortfalls and governance risks, further eroding confidence. The stock’s multiyear low underscores the urgency for the bank to address both financial underperformance and legal challenges to restore market trust.