Shortly before midnight on the eve of a bank holiday in India, global investor favorite HDFC Bank Ltd surprised the market. by announcing the sudden exit of its president. One line jumped out from the statement: Atanu Chakraborty resigned two years ago over “ethical” differences with the bank.
Left unsaid was what Chakrabarty actually meant.
This is now becoming clear, four days later the boardroom fight broke out into the open and wiped out more than a 10th of HDFC Bank’s market capitalisation, or about $16 billion.
According to people familiar with the matter, the rift occurred due to differing views on accountability, particularly over client losses linked to risky bonds sold by Credit Suisse. Recently restrictions were imposed on HDFC Bank in Dubai. In Chakraborty’s view, more senior bank officials should have been held responsible for the missteps. He also became disappointed with the bank’s weak performance, including share price and profitability, compared to its peers.
Chakraborty did not respond to a question from Bloomberg News. HDFC Bank said in a statement that it has a well-established governance framework, “and is committed to maintaining high standards of compliance and regulatory adherence.”
chronology of events
The chain of events that led to Chakraborty’s departure late Wednesday began behind the scenes a few days ago.
Chakraborty, 65, had called the board meeting at short notice on March 18, presenting few details of the agenda. The directors gathered on the sixth floor of the corporate offices in South Mumbai – the erstwhile headquarters of its parent company. First of all, the Nomination and Remuneration Committee was convened. It was here that former senior bureaucrat Chakraborty submitted his resignation as part-time chairman before informing the board.
A tense conversation ensued as the directors tried to persuade him to reconsider. When that failed, he urged her to tone down the language in her resignation letter, which would later shock investors with its frankness: “Certain events and practices within the bank that I have observed over the past two years are not consistent with my personal values ​​and ethics,” he wrote.
Despite the board’s pleas, Chakraborty refused to budge from the words, nor explain what he meant by the ethical differences.
By late Wednesday night, the lender had no option but to proceed. CEO Shashidhar Jagadeesan and some other board members met the Reserve Bank of India—the country’s central bank and banking regulator—to inform Chakraborty of the decision. Within hours, bank director and India’s financial sector veteran Keki Mistry was officially named interim chairman. Around 10:30 pm, the revelations hit the exchanges.
after
When markets opened the next morning, uncertainty over the lender’s regime turned into fear. Retail investors flooded brokers with calls. Fund managers sought clarity on a testy conference call. Social media fueled speculation about the bank, which is widely held by foreign institutional investors and is often treated as a proxy for India’s economic success story.
“If you care about your company, if you care about the time you spend there, if you care about other stakeholders and shareholders – you wouldn’t resign with immediate effect in the middle of a week,” Samir Arora, a veteran fund manager and investor, wrote on Twitter.
Other reactions were more nuanced, as some said the president would not have stepped down unless something was seriously wrong. A few hours later Chakraborty tried to retract his comments and told 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 and say there were no concerns about its conduct or governance. Such interventions by the central bank are generally reserved for cases of systemic stress. Joydeep Shome, a 51-year-old investor, asked his broker whether HDFC Bank stock was a “buy on the dip, or goodbye forever?”
fire fighting
By Thursday morning, the bank’s leadership went into overdrive. Mistry on hasty call with analysts and journalists tried to draw a line Under speculation. He said that in large organisations, relationship issues between employees are common, and there were no governance issues at the firm. Jagadeesan, who is usually media shy, also came forward on the call to reassure investors. The board closed ranks.
Yet as the call progressed, one question refused to go away: What exactly compelled the chairman to exit so suddenly when, as the board claimed, there were no governance concerns or hidden financial strains?
crux of the matter
At the heart of the breakdown were long-standing disagreements over accountability that stemmed from client losses tied to Credit Suisse loans, according to people familiar with the internal discussions. Switzerland’s regulator wrote off about $17 billion of so-called excess Tier 1 notes during the bank’s rescue by UBS Group AG in March 2023, wiping out global bondholders.
HDFC Bank, along with many other global companies, was caught up in the fallout and faced allegations of mis-selling. Some of its customers claimed that they were not properly informed about the high-risk nature of the bonds, although the lender has maintained compliance with all applicable laws.
While the Credit Suisse affair led to sanctions against some officials, Chakraborty emphasized broader accountability and argued that more senior officials should be held accountable and cleared, the people said. Senior management did not agree, leading to a standoff.
HDFC Bank was also barred from adding new customers to its Dubai branch last year after the Dubai International Financial Center exposed flaws in its processes.
In its response to Bloomberg News, the bank said it had identified certain deficiencies in client-onboarding requirements in Dubai and had completed a detailed and objective review of the matter. Appropriate remedial action has been taken and personnel changes have been made.
Three employees were removed after an internal investigation into the Dubai matter. None of them were members of senior management, the bank said in a statement late Monday.
A deep malaise?
Of course, the Credit Suisse bonds and the Dubai affair were not the only sources of discord within the bank.
Chakraborty became disappointed with the bank’s lagging performance, including its profitability, customer service and technology systems. Over the past three years, shares of HDFC Bank have barely moved, while rivals including State Bank of India and ICICI Bank Ltd have surged like benchmark indices.
Over time, Chakraborty developed a reputation for over-monitoring the bank. Some executives viewed this as micromanagement, which is typically beyond the scope of most non-executive, part-time chairmen. For example, he was said to be closely involved in decisions like extending the tenure of senior employees. Chakraborty became frustrated that he opposed tighter monitoring, particularly on issues related to whistleblower complaints.
It clashed with a management team composed of a different heritage.
Management Style of HDFC Bank
Under Aditya Puri, the bank’s former longtime CEO, operational autonomy for executives was a defining characteristic. His successor, Jagadeesan, largely continued that approach. The result was that the lack of trust between Chakraborty and the management increased. There came a time when the relationship broke down.
For a bank already grappling with balance sheet challenges following a merger with a mortgage lender in 2023, the timing could hardly be worse. The possibility of an independent review of the issues raised by Chakraborty is still under discussion, although the lack of specifics in his resignation letter complicates things. Regulators are also expected to keep a close watch.
Mistry said the bank also has a decision on CEO succession, which will be discussed next month. Jagadishan’s tenure is till October and he is eligible for reappointment. Under normal circumstances, there would have been little debate over his continuity. Now, it has become a focal point.
Analysts said the path forward for the bank would require more than restoring peace. This will include reaffirming the balance between board oversight and executive authority, he said, especially as the institution grows larger and more complex.
