One of the most talked-about boardroom actions last week was the sudden exit of HDFC Bank Chairman Atanu Chakraborty. This triggered a sharp selloff in the stock, wiping out nearly $11.5 billion in market value of HDFC Bank stock. While the company reiterated that there was ‘no power struggle’, a Bloomberg report indicated possible ‘disagreement centred on accountability within the bank.
Chakraborty cited “ethical differences” in his resignation letter. That triggered a lot of questions.
Accountability faultlines
Four days on, the contours of that rift seem to be emerging, as per the latest report from Bloomberg. At the heart of the fallout were differing views over how responsibility should be fixed for certain missteps. These included client losses linked to high-risk bonds issued by Credit Suisse and regulatory restrictions imposed on HDFC Bank’s Dubai branch.
Chakraborty believed that accountability should extend to more senior officials and that the bank needed to take a harder line internally, according to Bloomberg. The management, however, did not share that view, leading to a standoff that ultimately proved irreconcilable, Bloomberg said.
According to the Bloomberg report, the Credit Suisse episode dates back to 2023, when regulators in Switzerland wrote down around $17 billion of Additional Tier 1 bonds during the lender’s rescue. HDFC Bank was among institutions caught in the fallout, facing allegations of mis-selling such instruments to clients, though it has maintained that it complied with applicable regulations, the report added.
In Dubai, the bank’s branch was temporarily barred from onboarding new customers after gaps were identified in client onboarding processes, an issue the bank has said it has since addressed, according to the Bloomberg report.
Financialexpress.com was not able to verify this information independently.
Oversight versus autonomy
The tension was not limited to specific incidents. Chakraborty had increasingly pushed for greater oversight of the bank’s functioning, Bloomberg reported, including closer scrutiny of senior appointments and whistleblower complaints. This approach ran into resistance from a management team accustomed to a high degree of operational autonomy.
As per the Bloomberg report, that culture has its roots in the tenure of former CEO Aditya Puri and has broadly continued under current chief executive Sashidhar Jagdishan. Over time, the divergence in approach created a widening trust deficit between the chairman and the executive team.
Chakraborty was also said to be dissatisfied with the bank’s recent performance relative to peers. While rivals such as State Bank of India and ICICI Bank have seen strong stock gains, HDFC Bank’s share price has remained largely subdued over the past three years, alongside concerns around profitability, customer service and technology systems, Bloomberg added.
In an independent interview with The Times of India, HDFC Bank CEO Sashidhar Jagdishan has indicated he is open to such a probe, saying, “My personal view is that we should have one,” while adding that an independent person or body would be the “right thinking” if the board decides to proceed. He also told Times of India that he would recuse himself if required, noting, “I’m not going to be a part of the committee.”
A dramatic exit and market jitters
According to Bloomberg, the sequence of events moved quickly. Chakraborty called a board meeting at short notice on March 18 and submitted his resignation during a committee discussion before informing the full board. Directors attempted to persuade him to reconsider and even urged him to tone down the language in his resignation letter, but he declined.
The wording, referring to practices at the bank not being “in congruence” with his personal values, unsettled investors when it became public, the report said. Within hours, the bank informed the Reserve Bank of India and appointed Keki Mistry as interim chairman before disclosing the development to stock exchanges late at night.
When markets reopened, the reaction was swift. Investors sought clarity amid growing speculation, prompting the RBI to step in with an unusual reassurance that there were no concerns regarding the bank’s governance or stability, Bloomberg noted. The bank’s leadership also moved to contain the fallout, with both Mistry and Jagdishan addressing analysts and emphasising that there were no systemic governance lapses.
What next for the bank
Even as the bank has sought to draw a line under the episode, the exit has brought unresolved questions to the fore. Bloomberg reported that discussions are underway on whether an independent review of the issues flagged by Chakraborty should be conducted, although the lack of specifics in his resignation complicates that process, the Bloomberg report noted.
The timing adds to the uncertainty. The bank is already navigating integration challenges following its merger with a mortgage lender and faces an upcoming decision on CEO succession, with Jagdishan’s term running until October, as per Bloomberg.