HDFC Bank board in firefighting mode after part time chairman quits citing values and ethics

After Atanu Chakraborty resigned, stating certain happenings and practices within the bank observed over the last two years were not in congruence with his personal values and ethics, the management and board members of HDFC Bank have tried to go all out to try and assure stakeholders that there were no material matters or any specific operational issues at the country’s largest private sector lender.

Also read: HDFC Bank addresses report on MD & CEO Sashidhar Jagdishan extension

Several board members stressed that the chairman in the board meeting on Wednesday was asked to point out any specific issues, but he hadn’t pointed to any.

“I would not personally have taken the responsibility if the bank’s governance standards and ethos were not aligned with my values, and I truly believe that the bank adopts the best form of governance and ethics,” said Keki Mistry in an interaction with reporters. The Reserve Bank of India has approved his appointment as the interim part-time chairman of HDFC Bank for three months.

Also read: HDFC Bank shares hit a 1-year low after chairman’s exit; is it time to ‘Buy’?

He stressed that there were no material matters at this point in time, there were no specific happenings and practices that were brought to the board’s attention, nor were there any specific operational or other issues that had been highlighted.

“The board remains firmly committed to safeguarding institutional resilience and investor confidence. HDFC Bank board operates with strong governance standards, robust internal controls, and a very experienced management team who have been in the bank for a number of years and probably decades,” pointed Mistry.

Several board members who attended the media interaction on Thursday afternoon stated that Chakraborty was asked to mention any specific issues he had, so that they could be addressed, but his response was that there was nothing substantive.

“At one end in the sentence and in the body (of the letter) Mr Chakraborty had mentioned his comments on ethics, and we had asked him to elaborate, because if it was anything, then we need to correct it. Every time we asked that, his response was nothing, and that was baffling,” said Renu Sud Karnad, a non-executive director on the HDFC Bank board.

Despite the lender’s management trying to calm nervous investors, the abrupt resignation of the chairman and the language that was used in his letter led to a sharp sell-off in HDFC Bank’s shares, at a time when the market has already taken a hit due to the ongoing conflict in West Asia.

HDFC Bank’s shares hit a 52-week low of Rs 772 on the BSE on Thursday, before recovering a bit to close at Rs 779.70, still 5.1 per cent lower. The broader Sensex plunged 2,497 points or over 3.3 per cent lower at 74,207.24.

The concerns about HDFC Bank also weighed on the overall banking sector on Thursday. Major private sector banks like IndusInd Bank, Axis Bank, ICICI Bank and IDFC First Bank declined 3-4 per cent. PSU Banks also fell between 2-5 per cent.

“While fundamentals remain strong with good return on assets, at this point in time, governance concerns will weigh down heavily on the stock. Investors would want more comfort from the board. Also, now the uncertainty surrounding Sashidhar Jagdishan’s reappointment will weigh down on the stock,” Suresh Ganapathy, head of financial services research at Macquarie Capital India, said on HDFC Bank.

The sudden leadership change at the top comes in a year when the tenure of Sashidhar Jagdishan as the MD and CEO of the lender is also due to come up for renewal later this year. Jagdishan’s tenure was renewed in 2023, until October 2026. Were there any differences between the chairman and the board over his reappointment? Officials refuted that.

Mistry stated that Chakraborty’s resignation is unlikely to impact Jagdishan’s reappointment.

“Chakraborty’s resignation had nothing to do with the reappointment of Jagdishan. They are completely different matters. The bank’s NRC (nomination and remuneration committee) will consider Jagdishan’s reappointment in the very near future,” stated Mistry.

A major milestone during Chakraborty’s tenure as chairman was the merger of India’s largest mortgage lender, HDFC Ltd, with its then-subsidiary HDFC Bank in 2023. In his resignation letter, he had mentioned that the benefits of the merger were yet to fully fructify.

The bank’s board members also tried to address this issue, stating that there was a huge amount of cross-selling that was already happening.

“For every home loan that we have given today, we get 97 per cent of those people to open a savings account with the bank. We have now been about a little over 2 years into the merger, and accounts that opened two years ago have clearly shown growth, much higher, 2.5 times that of the average balances that otherwise we find in the savings account,” noted Kaizad Bharucha, the bank’s deputy managing director.

Beyond that, there were opportunities to cross-sell various other need-based products like credit cards or personal loans or home insurance to these customers, he added.

All eyes will now be on who the bank selects as the chairman. The Reserve Bank of India is closely watching the developments. The central bank, which so far sees no material concerns on record as regards HDFC Bank’s conduct or governance, has said it would continue to engage with the bank’s board and management on the way forward.