MUMBAI: A day after HDFC Bank chairman Atanu Chakraborty resigned citing ethical concerns, the bank’s interim leadership moved to steady nerves, saying the allegations “defy logic” and flag no material issues.
Interim chairman Keki Mistry said on Thursday that discussions so far had thrown up no operational or governance lapses. “Based on our discussions, there were no specific happenings and practices that were brought to our attention. There were no specific operational or other issues that have been highlighted,” he said, hours after being elevated to the role.
The bank said in a separate statement that while Chakraborty’s resignation letter was dated 17 March, Tuesday, it was received at 3:17 pm on 18 March, Wednesday.
On Wednesday, HDFC Bank said Chakraborty had stepped down with immediate effect, with his letter to the board citing “certain happenings and practices within the bank” that were “not in congruence” with his personal values and ethics. The market reaction was swift: shares fell as much as 8% on Thursday morning and were at ₹803.6 apiece, down 4.7% at 10:37 am.
“Believe me, at the age of 71, I would not take on this responsibility for three months if the systems, processes, governance practices in the bank did not align with my principles and my level of integrity,” said Mistry. “I can only say that at the board level, there has never ever been any kind of a discussion on any matter which is contentious in terms of governance.”
Mistry said the board met on Wednesday evening, after which some members met the Reserve Bank of India, which then approved his appointment as interim chairman for three months.
No irregularities seen, uncertainty remains
Analysts, while flagging near-term uncertainty, said the regulatory response suggests no serious lapses.
“We believe there are no financial irregularities or serious accounting issues given (that) RBI allowed appointment of Keki Mistry as the interim chairman. Second, (there are) specific references to personal standards by Atanu (Chakraborty), rather than accusations of financial irregularity,” analysts at Bernstein said in a note on Thursday.
Bernstein said the stock was already trading at or below Covid-19 level valuations, but cautioned that recovery from these allegations could be slow, with investors likely to wait for clarity on whether regulators initiate further scrutiny.
Suresh Ganapathy, managing director, head of financial services research, Macquarie Capital, said that near-term underperformance may persist. 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 Sashi’s (CEO Sashidhar Jagdishan) reappointment will weigh down on the stock,” said Ganapathy.
Mistry said the board remains unclear on the specifics behind Chakraborty’s remarks. Members had sought clarification, but he “did not give any specific explanation,” he said.
Another board member told investors that Chakraborty maintained there were no regulatory concerns.
“(He said) It could be my value systems, etc., which are different, but he didn’t say anything on regulatory aspects of the bank. It was all sound, he agreed. In fact, we had repeatedly asked him to tell us why, what is the reason behind this, but he said there was nothing and that is a bit baffling,” said a board member who could not be identified over the analyst call.
Asked about board dynamics, Mistry said differences do arise but are not material. “In no board meeting has there been any kind of complete differences of opinion or anything of that sort. And the board minutes will reflect that. Human beings are human beings and there will always be some relationship issues between individuals,” said Mistry.
Chakraborty, who joined the board in May 2021, said in his resignation letter that his tenure saw “momentous events like merger of the bank with HDFC Ltd that created a conglomerate under the bank…This strategic initiative made HDFC Bank the second largest bank in the country. Though, the benefits of merger are yet to fully fructify.”
