The surprise resignation of the part-time chairman of HDFC Bank Ltd, which wiped $16 billion off the market capitalization of India’s largest private lender, has put its CEO in the spotlight amid murmurs of bitterness in the top management and uneasiness about its poor performance compared to peers.
On March 18, Atanu Chakraborty resigned from HDFC Bank citing differences over “values and ethics”, triggering a selloff in the stock and damage control exercises by the bank. Although they did not elaborate on the differences they cited, nine people, including board members and some current and former employees, told Reuters that the bank has been grappling with internal differences in recent years, including between Chakraborty and CEO Shashidhar Jagadeesan.
People with knowledge of the matter said that there was a clash between the two over the bank’s strategy and its HR policy. He declined to disclose his name due to the sensitivity of the matter.
HDFC Bank management and India’s banking regulator denied any governance or financial problems at the lender, but its stock fell 12% in the three days following Chakraborty’s exit. It briefly recovered and weakened again after the bank said last week it had hired outside law firms to review the claims.
Investor concerns about HDFC Bank’s management come at a particularly inconvenient time for the lender: The Iran war is set to weigh on the Indian economy and dampen credit growth prospects in the banking sector.
“Investors will ultimately focus on long-term performance, but if quarterly results and share prices underperform the market, shareholders will ask questions about management performance and demand a change in leadership,” InGovern founder Sriram Subramanian told Reuters. InGovern is a corporate governance research and proxy advisory firm.
boardroom friction
Jagadishan, whose tenure as CEO ends in October 2026 unless extended, took over from HDFC Bank founder and CEO Aditya Puri in 2020.
Chakraborty joined as chairman in April 2021. The former top bureaucrat soon began involving himself in operational and management matters — an unusual move for a non-executive director in an Indian corporate boardroom, said four people cited earlier.
He also intervened in human resources policy as a member of the nomination and remuneration committee and, in at least one instance, changed the performance ratings of some senior executives – a prerogative of the chief executive, according to another former senior executive.
HDFC Bank did not respond to Jagadishan’s request for comment sent through the bank’s official spokesperson.
In 2024, Chakraborty opposed the proposal to approve equity investment by Japan’s Mitsubishi UFJ Financial Group in the consumer finance arm of HDFC Bank. While Jagadeesan advocated bringing in a foreign lender as a strategic partner, the former chairman opposed the move, arguing against the involvement of a foreign entity in an Indian company and objecting to the lack of a bidding process in the potential investment, the people said. Ultimately the plan collapsed.
When Chakraborty was asked by Reuters whether there were continuing differences with the CEO and whether these were raised at the board level, he said:
When Chakraborty was asked whether there were persistent differences with the CEO and whether they were raised at the board level, he told Reuters over a text message, “There is a structure in place to handle various governance and accountability issues.” “If issues need to be finalized at the board, they are put there. It is a well-laid out process and it evolves with changing times,” he said without elaborating or commenting on other questions.
Apart from the differences between the two, Jagadeesan’s relationship with some other top executives has also been a matter of concern for investors and employees. The concerns came to the fore in an analyst call held by the bank following Chakraborty’s resignation.
When asked on the call whether there was a power struggle at the management level, especially between the CEO and deputy MD Kaizad Barucha or other top executives, Jagadeesan ignored those concerns.
“Kaizad is a very dear colleague, and I have great respect and admiration for him,” he said on the call, adding that Barucha, who has responsibility for the bank’s entire loan book, “will have more responsibilities as we move forward.”
Barucha did not respond to Reuters’ request for comment.
hdfc merger overhang
The board’s bitterness also reflects limited benefits from the lender’s $40 billion merger with its largest shareholder in 2023 and internal concerns about the stock underperforming peers over the past five years, the people said.
HDFC Bank’s acquisition of housing financier HDFC Ltd adds to its assets in 2023 ₹₹7.23 lakh crore but brought in a relatively smaller deposit base, squeezing margins, impacting returns and impacting growth.
The bank’s loan margin has declined from 4.1% before the merger to 3.35% now. It had to slow asset growth to help stabilize its loan-to-deposit ratio, which rose to about 110% after the merger, from 86%-87% before it.
Read this also Even before the Iran war, a storm had arisen against HDFC Bank, the chairman was out.
Gary Tan, a portfolio manager in the emerging markets equities team at Allspring Global Investments, which owns HDFC shares, said while the CEO inevitably takes some responsibility when a stock performs poorly, the bank’s challenges stem from merger-related execution risks.
Steve Lawrence, CIO of US-based Balfour Capital Group, said HDFC Bank’s current situation was one of “cyclical execution pressure rather than structural leadership failure”.
“The market demands clarity – and when execution visibility is reduced, leadership perception becomes a factor in valuation compression,” he said.
