Switzerland international Xhaka joined the Gunners in a £35 million deal from Borussia Monchengladbach last summer, but has largely failed to convince at the Emirates Stadium.
Xhaka's discipline has been the main bone of contention for many Arsenal fans, with the former Basel man having been sent-off twice while he has been booked in each of his last five matches.
Despite that, Hitzfeld admits that Xhaka is a player that continues to be on the radar of Bayern, hinting he could yet be a transfer target for Carlo Ancelotti's side.
"Bayern certainly has Xhaka on the radar," he told SportBild.
"Xhaka is always a topic of conversation for current top clubs and his development is not yet completed."
Bayern could be in the market for a central midfielder this summer following Xabi Alonso's announcement this week that he was retiring, though they do currently have Renato Sanches and Joshua Kimmich in reserve.