HDFC Bank shares have plummeted to a three-month low following the release of its Q3FY26 business update, triggering concerns among investors regarding slower deposit growth. The stock's decline is attributed to multiple factors, including a sharp fall in its American Depositary Receipts (ADR) and anxieties surrounding the bank's Loan-Deposit Ratio (LDR).

Stock Performance and Q3 Update

HDFC Bank's share price experienced a significant downturn, dropping almost 5% in two consecutive sessions. After falling 2.35% to ₹977.70 on Monday, the shares opened at ₹968.45 on Tuesday and further declined by 2.23% to an intraday low of ₹955.90. This decline of 4.52% over two days has pushed the stock to its lowest level in three months. Simultaneously, the bank's ADR crashed 6.33% overnight, further contributing to the negative sentiment.

Despite the stock's poor performance, HDFC Bank's Q3 business update revealed positive growth in key areas. The bank reported a 11.9% year-on-year increase in gross advances, reaching approximately ₹28,445 billion as of December 31, 2025. Average deposits also grew by 12.2% YoY to ₹27,524 billion. However, the market's reaction was lukewarm, with investors focusing on the slower sequential growth and the rising LDR.

Loan-Deposit Ratio Concerns

One of the primary reasons for the market's negative response is the escalating Loan-Deposit Ratio (LDR), which has climbed to nearly 99%. This figure is significantly higher than the bank's target of reducing the ratio to below 90% in the near term. A high LDR indicates that a larger proportion of deposits are being deployed as loans, making deposits a critical constraint on further expansion. The surge in LDR casts a shadow over the bank's growth projections for the upcoming financial year. Management had previously signaled expectations for financial year 2027 to see growth exceeding industry averages, but the current LDR levels challenge the feasibility of these ambitious targets.

Analysts' Perspectives and Future Outlook

Analysts have expressed concerns that the high LDR could limit the bank's ability to sustain its growth momentum. The market is closely watching HDFC Bank's strategies to manage its deposit growth and maintain a healthy balance between loans and deposits. The bank's earnings call on January 17, 2026, will be crucial, with commentary on margins and future growth plans being closely scrutinized.

Market Impact and Sectoral Trends

HDFC Bank's stock decline has had a significant impact on the broader market, contributing negatively to the Nifty 50 index. The situation has highlighted a divergence in the banking sector, with private sector banks undergoing consolidation facing pressure, while public sector banks are experiencing a surge due to valuation comfort and growth momentum. This reflects a global rotation from "expensive growth" (private banks) to "value with momentum" (PSUs).

Despite the current challenges, HDFC Bank remains a steady player with high expectations. The bank's ability to address the concerns surrounding its LDR and maintain deposit growth will be critical in determining its future performance.