Why HDFC Bank Shares Have Lagged ICICI Bank And Axis Bank Over The Past Five Years

The Headline Gap, And Why The Exact Number Moves

HDFC Bank is India's largest private sector bank by assets, and for years it traded at a premium valuation precisely because the market trusted its consistency. That trust has been tested over the past few years.

Recent reporting describes HDFC Bank's return over a trailing 5 year period as coming in below prevailing fixed deposit interest rates, a genuinely weak outcome for an equity investment over that length of time, and the stock has declined nearly 24% in 2026 on a year to date basis alone, among the worst performers in the Nifty 50 this year.

ICICI Bank, over a broadly similar window, has been reported delivering an absolute return above 150%. Axis Bank has also outperformed HDFC Bank by a wide margin over the same multi year stretch, though its most recent quarters have shown some of the same pressure now affecting the sector more broadly. The single biggest reason for HDFC Bank's specific underperformance traces back to one event.

The Merger That Changed Everything

In July 2023, HDFC Bank completed its merger with its former parent, HDFC Limited, in an all stock transaction that absorbed a very large mortgage lending book directly onto the bank's balance sheet. The deal was widely described as transformational for the bank's scale and distribution reach, and it was also, immediately, a genuine operational disruption.

The merger raised HDFC Bank's loan to deposit ratio meaningfully, since the newly absorbed mortgage book needed funding that the bank's existing deposit base was not sized for. That single structural shift is the starting point for nearly everything that has weighed on the stock since.

The Margin Squeeze

Funding a much larger loan book meant competing harder for deposits, and the mix of that funding shifted in a costly direction. CASA, the current and savings account deposits banks prize because they cost next to nothing, fell from roughly 38% of HDFC Bank's funding base to around 32% as of a recent quarter, as savers moved cash into higher paying fixed deposits instead, with time deposits reported growing 17.4% even as the CASA share continued slipping.

Costlier funding, spread across a larger loan book, pushed the bank's net interest margin down to 3.26% in one recent quarter, a 12 basis point sequential decline described by one analysis as the lowest level in the bank's history, well below the above 4% core margin the bank ran before the merger.

Metric	Before The Merger	Recent Level
CASA ratio	Around 38%	Roughly 32%, with time deposits growing 17.4% in a recent quarter
Net interest margin	Above 4%	3.26% in a recent quarter, described as an all time low for the bank, down 12 basis points sequentially
Retail loan growth versus corporate and wholesale	Retail was a larger driver of the mix	Retail grew 7.2% in a recent quarter versus 18.6% growth in corporate and wholesale lending

The merger made HDFC Bank considerably bigger. It did not, at least not yet, make every part of the bigger balance sheet as profitable as the one it replaced.

Growth That Looked Fine On The Surface, Weaker Underneath

Headline loan growth at HDFC Bank has not actually been the problem. Gross advances grew 15.4% in one recent quarter, a perfectly healthy number on its own, and standalone net profit for the quarter ended June 2026 rose 18.37% year on year to Rs 19,244.71 crore, up from Rs 16,257.91 crore a year earlier, with total operating income up 3.67% to Rs 90,575.33 crore.

Those headline numbers look reasonably strong in isolation. The composition underneath them tells a more specific story: retail loans, the higher margin, more profitable segment of a bank's book, grew just 7.2% in a recent quarter, while corporate and wholesale lending grew 18.6%, a much lower margin category that a bank generally leans on when it needs to grow its book quickly rather than selectively.

Over a longer 5 year window, HDFC Bank's profit grew at a 19% compound annual rate, below an industry average estimated at around 22% over the same period, a genuine, quantified gap rather than a matter of sentiment alone. Return on assets stood at 1.85% and return on equity at 13.8% in a recent quarter, both respectable figures on an absolute basis, but below the levels the bank would need to justify the premium valuation multiple it once commanded.

Why ICICI Bank Looks Different

ICICI Bank did not go through a comparable structural disruption over this period, and its financial trajectory reflects that. Return on equity improved from under 12% to somewhere in the range of 17% to 18%, among the strongest of India's large banks, while net NPA has been reported at 0.37%, better than HDFC Bank's own more recently reported asset quality.

ICICI Bank has not been entirely without its own rough quarters, its Q3 FY26 results triggered a 3% share price fall after the bank's earnings missed estimates, a shortfall brokerages attributed to higher agricultural loan provisions and labour law related costs rather than any structural weakness in the core lending business.

Even so, CLSA maintained an Outperform rating with a Rs 1,700 target price on the stock, and Jefferies kept a Buy rating while raising its own target to Rs 1,730. That combination, cleaner organic growth without a merger to digest, alongside genuinely improving profitability even through the occasional weak quarter, is the core of why the market has priced ICICI Bank's shares higher relative to HDFC Bank's over this stretch, not a single event but a steadily compounding gap between the two banks' underlying numbers.

A Recent Quarter, Side By Side

Bank	Recent Quarterly Profit Growth	Key Detail
HDFC Bank	Standalone profit up 18.37% year on year to Rs 19,244.71 crore	Net interest margin fell to 3.26%, a 12 basis point sequential decline
ICICI Bank	Reported an earnings miss in Q3 FY26, share price fell 3% on the result	Shortfall attributed to higher agricultural provisions and labour law related costs, not core lending weakness
Axis Bank	Standalone profit up 23% year on year to Rs 7,114 crore	Share price still fell over 5% on the day, driven by net interest margin concerns

Figures reflect different specific quarters as reported across available sources and are not all drawn from the same reporting period; they are included to show that all three banks have faced some version of the same net interest margin scrutiny recently, not only HDFC Bank.

Where Axis Bank Fits

Axis Bank has also outperformed HDFC Bank by a wide margin over the trailing multi year period, without carrying anything close to the same merger related disruption.

That said, Axis Bank's most recent results suggest its own outperformance has narrowed somewhat: its Q1 FY27 results showed standalone net profit up 23% year on year to Rs 7,114 crore, with consolidated profit up 22.23% to Rs 7,632 crore, both strong headline numbers, and the stock still fell over 5% on the day, driven by the same net interest margin concerns now weighing on private banks broadly.

Bank management reportedly indicated margins are likely near the bottom of the current cycle, though without offering a clear timeline for recovery, which is part of why investors reacted cautiously despite the strong profit growth. Axis Bank's underperformance relative to ICICI Bank, to the extent it exists in the very recent stretch, looks like a narrower, more recent story than HDFC Bank's longer running, merger driven gap.

Two Very Different Ownership And Payout Structures

A structural difference between these banks that rarely makes it into the performance conversation is who actually owns them and how much of their profit they return directly to shareholders. HDFC Bank has no promoter shareholding at all, a 0% promoter stake, reflecting its history and ownership structure, while Axis Bank carries an 8.1% promoter stake.

The two banks also take very different approaches to dividends: HDFC Bank paid a dividend of Rs 22 per share in its most recent financial year, a payout ratio of 23.8% of profit, while Axis Bank paid just Rs 1 per share, a payout ratio of only 1.1%, preferring to retain the large majority of its profit rather than distribute it.

Neither approach is inherently better, but they reflect different capital allocation philosophies that are worth knowing before comparing the two stocks purely on price return alone, since a dividend heavy stock and a retention heavy stock deliver part of their total return through different channels.

The Valuation Gap In Numbers

Valuation multiples across all three banks have moved over the past 5 years, but by different amounts. HDFC Bank's price to earnings ratio fell from 25.9 in March 2021 to 19.8 in March 2025, while ICICI Bank's fell more modestly, from 21.9 to 18.8 over the same stretch, converging the two stocks' valuations far more than their business performance alone would suggest, given ICICI Bank's stronger profitability improvement over the same period.

By July 2026, HDFC Bank traded at roughly 1.98 times its consolidated book value of about Rs 394 per share, at a share price near Rs 780, a multiple that becomes harder to justify with return on equity sitting below 14%. Market capitalisation tells a related but distinct story: HDFC Bank's market cap grew from about Rs 8.2 lakh crore in March 2021 to roughly Rs 14 lakh crore in March 2025, an 11% compound annual rate, while ICICI Bank's grew from about Rs 4 lakh crore to over Rs 10 lakh crore, a 19% compound annual rate.

HDFC Bank's market cap growth looks healthier in isolation than its share price story alone would suggest, largely because the 2023 merger issued a very large number of new shares to former HDFC Limited shareholders, which mechanically inflates total market capitalisation without reflecting the same rate of gain for an investor who already held HDFC Bank shares before the merger.

Valuation Metric	HDFC Bank	ICICI Bank
Price to earnings ratio, March 2021	25.9	21.9
Price to earnings ratio, March 2025	19.8	18.8
Market capitalisation, March 2021	Roughly Rs 8.2 lakh crore	Roughly Rs 4 lakh crore
Market capitalisation, March 2025	Roughly Rs 14 lakh crore	Over Rs 10 lakh crore
Implied market cap compound annual growth	About 11%	About 19%

HDFC Bank's market capitalisation growth is not a clean substitute for its share price return, since its 2023 merger with HDFC Limited issued a large number of new shares, which increases total market capitalisation independent of how the share price itself performed for an existing shareholder.

Not Everyone Agrees The Gap Is Fully Justified

It is worth including the other side of this. CLSA, a major global brokerage, has argued that the selloff in both HDFC Bank and Axis Bank has been overdone, driven by too narrow a focus on the net interest margin figure specifically, while giving too little credit to healthy corporate loan growth, lower operating costs, and improving asset quality at both banks.

By CLSA's own figures, both stocks were trading at roughly 1.4 to 1.5 times forward price to book, a discount of about 35% to ICICI Bank, near the widest gap on record between them.

Other brokerages are more divided on HDFC Bank specifically than the headline weakness might suggest: Nuvama has maintained a Buy rating with a target price of Rs 1,170, implying meaningful upside from recent levels, while Bernstein has taken a more cautious Market Perform stance with a Rs 1,550 target, and has separately noted the bank remains on what it calls a slow normalisation path rather than a resolved one.

A well documented underperformance story and a fully justified one are not automatically the same thing, and this is a genuine, ongoing debate among analysts rather than a settled question.

The Industry Backdrop Matters Too

Some of what has weighed on HDFC Bank is specific to its own merger, but not all of it. Net interest margin pressure has been a sector wide theme across Indian private banks recently, part of why Axis Bank fell on its own margin commentary despite strong profit growth, and part of why CLSA's defence of both HDFC Bank and Axis Bank rests on separating a sector wide margin story from each bank's individual fundamentals.

The broader interest rate backdrop is relevant context: the Reserve Bank of India cut the repo rate to 6.25% in February 2026, with further cuts anticipated, a trend that pressures lending margins in the near term but is generally expected to support loan demand and margins over a longer horizon as borrowing costs ease across the economy.

India's GDP growth was projected in the 6.5% to 7% range for FY26, a backdrop supportive of credit demand generally, even as individual banks work through their own specific balance sheet issues within that broader environment.

Note: The precise percentage gap between these three stocks moves depending on the exact start and end dates used, and different sources report meaningfully different figures for that reason. What is consistently and well documented, regardless of the exact dates chosen, is the direction: HDFC Bank has significantly underperformed both ICICI Bank and Axis Bank over a multi year stretch, with recent reporting placing its 5 year return below what a fixed deposit would have paid over the same period, and a nearly 24% decline in 2026 alone. This article focuses on the well documented reasons behind that gap, with as much specific, sourced detail as the current data supports, rather than any single precise return figure, which is worth verifying against a live quote for the specific dates that matter to you.

This article is for general informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Return figures, margins, valuation multiples, and other financial metrics cited here are drawn from public reporting current as of July 2026, vary by source and by the specific dates and quarters used, and should be independently verified before relying on them. Analyst ratings and target prices reflect the views of the specific brokerages cited at the time reported and change frequently. Past performance is not indicative of future results. Consult a qualified financial adviser before making any investment decision.

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