HDFC Bank faced a sharp market selloff and mounting investor concern on Thursday after the abrupt resignation of its part-time chairman Atanu Chakraborty, even as the Reserve Bank of India (RBI) and the bank’s management moved swiftly to reassure stakeholders that there were no governance lapses.
Chakraborty, who had served as chairman since 2021, stepped down late Wednesday, citing “certain happenings and practices” at the bank over the past two years that were “not in congruence” with his personal values and ethics. The letter, however, did not specify any instances.
Within hours, Chakraborty sought to clarify that his resignation did not point to any “wrongdoing” at the bank.
The initial remarks, however, rattled investors. HDFC Bank’s shares fell 5.3% on Thursday—its sharpest single-day decline since June 2024—erasing over $7 billion in market capitalisation and dragging the broader market lower at one point.
In an unusual intervention, the RBI issued a statement defending the country’s largest private sector lender, describing it as a “systemically important” bank with “sound financials, professionally run board and competent management team.”
The central bank said that based on its supervisory assessment, there were “no material concerns on record” regarding the bank’s conduct or governance, adding that it remains well-capitalised and liquid.
The bank also moved quickly to stabilise the situation. The RBI approved the appointment of Keki Mistry as interim chairman for three months starting March 19.
Mistry told analysts there were no specific operational issues at the bank and that the board remained unified. He suggested the episode may have stemmed from “relationship issues” between Chakraborty and the executive leadership rather than any substantive governance problem.
“It is a little baffling and we will get to the root of it in due course,” Mistry said.
Chief Executive Officer and Managing Director Sashidhar Jagdishan also played down concerns, saying “a large organisation will have errors of omission,” while maintaining that there were no violations. “We will proactively review all issues,” he said.
Despite these assurances, the lack of clarity around the chairman’s exit has left investors uneasy.
Chakraborty’s letter, followed by his partial walk-back, has triggered speculation about possible disagreements within the bank, including over senior appointments, regulatory matters related to its Dubai operations, and even whistleblower complaints. None of these have been officially confirmed.
Governance experts said the ambiguity itself was a concern. Ravi Varanasi, former NSE chief business officer, said the resignation “raises more questions than it answers.” Shriram Subramanian, founder of InGovern Research, said the bank should issue a detailed disclosure outlining the issues involved and consider setting up a committee of independent directors to examine the matter.
People familiar with the matter said the episode may reflect tensions over the role of a non-executive chairman. While such a role is meant to be supervisory, Chakraborty was seen as taking an active interest in operational matters, at times encroaching on executive functions and slowing decision-making.
There were also internal concerns about his involvement in personnel decisions, including on promotions and increments, according to people aware of the discussions.
Bankers said the reference to “personal values” in his resignation letter could indicate differences in approach rather than regulatory or compliance issues.
The episode comes at a time when HDFC Bank has been under closer scrutiny following past issues, including client complaints related to Additional Tier 1 bond sales after the Credit Suisse crisis and restrictions on onboarding new customers at its Dubai branch.
Analysts said that while the bank’s financial fundamentals remain strong, investor sentiment is likely to hinge on how it addresses the governance overhang.
“Fundamentals remain strong, but governance concerns will weigh on the stock until there is greater clarity,” said Suresh Ganapathy of Macquarie, which has removed the bank from its “marquee” buy list.