MUMBAI: Shortly before midnight on the eve of a bank holiday in India, HDFC Bank Ltd, a favourite among global investors, stunned the market by announcing the abrupt exit of its chairman.
One line in the statement jumped out: Atanu Chakraborty resigned over “ethical” differences with the bank going back two years. Left unsaid was what exactly Chakraborty meant.
That’s now becoming clearer, just days after the boardroom fight burst into the open and wiped out more than a 10th of HDFC Bank’s market value, or about US$16bil.
People familiar with the matter said the rift came down to differing views over accountability, particularly over client losses tied to risky bonds sold by Credit Suisse and recent restrictions imposed on HDFC Bank in Dubai.
In Chakraborty’s view, more senior bank officials should have been held responsible for the missteps.
He also grew frustrated over the bank’s lacklustre performance relative to peers, including its share price and profitability.
Chakraborty didn’t respond to a query from Bloomberg News. HDFC Bank said in a statement it has well established governance frameworks, “and continues to remain committed to maintaining high standards of compliance and regulatory adherence”.
The bank’s shares fell for a fourth straight session on Monday, losing 4.7% in a weak broader market.
The chain of events leading to the departure of Chakraborty late last Wednesday started behind the scenes a few days earlier.
Chakraborty, 65, had called a board meeting on short notice for March 18, offering few details of the agenda. Directors assembled on the sixth floor of the corporate offices in South Mumbai, the erstwhile headquarters of its parent.
The nomination and remuneration committee convened first.
It was there that Chakraborty, a former senior bureaucrat in the administration of Prime Minister Narendra Modi, submitted his resignation as part-time chair, before informing the board.
What followed was a tense exchange, as directors tried to persuade him to reconsider.
When that failed, they urged him to soften the language in his resignation letter, which would later stun investors with its bluntness.
“Certain happenings and practices within the bank that I have observed over the last two years are not in congruence with my personal values and ethics,” Chakraborty wrote.
Despite the board’s pleas, Chakraborty refused to budge on the wording, nor explain what he meant by ethical differences.
By late Wednesday, the lender had little choice but to move ahead. Chief executive officer Sashidhar Jagdishan and a few other board members met with the Reserve Bank of India (RBI), the country’s central bank and banking regulator, to inform them of Chakraborty’s decision.
Within a few hours, Keki Mistry, a bank director and a doyen of India’s financial sector, was officially named interim chairman. Around 10:30pm, the disclosure hit the exchanges.
By the time markets opened the next morning, uncertainty snowballed into fear about governance at the lender.
Retail investors flooded brokers with calls. Fund managers sought clarity on a testy conference call.
Social media amplified speculation about a bank widely held by foreign institutional investors and often treated as a proxy for India’s economic success story.
“If you care about your company, if you care about the time you spent there, if you care about other stakeholders and shareholders, you do not resign with immediate effect in the middle of a week,” veteran fund manager and investor Samir Arora wrote in an X-post.
Other reactions were more nuanced, as some said the chairman wouldn’t have quit unless there was something seriously wrong.
Chakraborty tried to walk back his comments a few hours later, telling a local television channel that his resignation was “routine”, and not indicative of any wrongdoing at the bank.
The market reaction prompted the RBI to defend the lender, saying there were no concerns about its conduct or governance.
Such interventions by the central bank are typically reserved for cases of systemic stress. — Bloomberg
