HDFC Bank Chairman's Shocking Exit | Atanu Chakraborty Resigns, Citing Differences With Mgmt

Hello and welcome to Newsmaker. I'm Ritu Singh. Rapid developments at India's largest private bank is our focus this evening. In a surprising turn of events, HDFC Bank's part-time chairman Atanu Chakravarti resigned from his role citing ethical concerns. He had been serving as the bank's part-time chairman since May 2021 and his current term was set to end in May of 2027. Now, former HDFC CEO Keki Mistri stepped in as the bank's interim chairman for three months with RBI's consent. Now, in his resignation letter, Atanu Chakravarti said, and I quote, 'Certain happenings and practices within the bank that I have observed over the last two years are not in congruence with my personal values and ethics.' End of quote. However, in his first response to ANI, Chakravarti described his resignation as a routine matter. Now shares of HDFC Bank fell in trade on the back of this development even as the RBI said there are no material concerns on conduct or governance at the bank's end. So what sparked this sudden resignation? Top sources tell us that Chakravarti's exit was not linked to the bank's conduct or regulatory concerns. Neither the RBI nor the bank initiated or directed the exit and it was very much an individual decision. In fact, we understand that the friction stemmed from Chakravarti functioning in an executive style in his non-executive role and the sudden resignation also took the board by surprise. Here is the bank CEO and the new interim chairman Keki Mistri addressing stakeholders and the media on all of these developments.

On behalf of the board and in full concert with the executive leadership, I wish to assure all stakeholders that there are no material matters at this point of time. Based on our discussions, there was no specific happenings and practices that were brought to our attention. There were no specific operational or other issues that have been highlighted. The board's oversight mechanism remains fully operational and our collective commitment to protecting the interests of the institution, depositors, shareholders and all stakeholders is completely and totally unwavering. This disclosure made is complete and transparent in line with regulatory requirements. As we move forward, we will sort of re-examine our organization structure and with the consent and the advice of the board, we will announce it at the appropriate time. Not at this juncture without the approval of the board which I will take it up to them at the right time post the financial year.

All right, joining me now is Furkhan Moharan who is also closely tracking the developments at HDFC Bank. Furkhan, let's begin with what you've picked up, what triggered the resignation.

Hi. So what we have picked up till now is that we have been given to understand by the sources that there has been a sort of tussle at the top of the HDFC bank and we have also been told that Atanu Chakravarti was against the extension being given to Sashidhar Jagdishan. Now Atanu Chakravarti had two major contentions regarding Sashidhar's extension at the top. One, he did not like the style of functioning of Sashidhar. You know Sashidhar is known as a soft spoken and a very people's person and who is not very aggressive unlike the stereotypical image of the banker. Also, another bone of contention that was there has been this thing of handling of the merger. Now this is also very subjective in nature given the fact that in a battle of NIM and stability at the bank, after what has happened post merger is that the credit deposit ratio has shot up to almost 110%. Now Sashidhar has to trade this fine line between the deposit growth and the credit growth and he has been focusing on increasing the deposit growth over the credit growth and which has not gone well with Mr. Chakravarti, that's what we are being told as of now. In fact we are also being told that in case of HDB Financial Services, if you remember that they were in talks with MUFG for a stake sale and it was called off because of the friction at the board level between Mr. Chakravarti and Sashidhar.

Well, you know, Furkhan do stay on. Was there any friction over extending his tenure as CEO?

Yes, that's what we are being told that there has been a friction regarding extension of his tenure as the CEO. As you know Sashidhar's current tenure is ending on October 26th this year and it's his second tenure at the top of the bank.

Yeah. Well, thanks for joining in with those details. Let's take the discussion forward. We're now joined by founder and MD of ING Governance, Sriram Subramanian and MD of Institutional Investor Advisory Services, Amit Tandon. We also have Abizer Dwanji who's the founder of Neostat Advisers who joins us on the show. Gentlemen, thank you so much for your time here. Sriram, if I may start with you since you track corporate governance professionally. When you have a sitting chairman of the largest private bank resigning citing practices not in congruence with his values and ethics and then gives the board no real explanation when asked, how do you read into that? Is it a governance failure, a personality conflict or just something else altogether?

Good afternoon. I would like to think that it's more of a personality issue as also a miscommunication as also a between management and the members of the board including the chairman. So the statement put out by HDFC Bank leaves a lot to be said because they have not assuaged the concerns of the investors because the chairman's letter ended up being cryptic. The onus is also on Mr. Atanu Chakravarti who stopped at just two sentences. He either should have detailed it much more or he should have just waited till his term ends or quit without saying those two sentences.

Well, that's true. I mean we all would have liked to see more details apart from that one cryptic line that is in Mr. Chakravarti's letter. But Abizer, I also wanted you to come in on the RBI coming out with the statement. I mean publicly trying to reassure people that everything is okay with HDFC Bank. In your experience given that RBI has only selectively done this in the past when there was a global financial crisis and there was a run on ICICI Bank or when Yes Bank was going through what it was, does the fact that RBI had to come out with a statement itself signal that they were concerned about the market perception.

I think RBI's biggest worry has to be systemic and HDFC is one of the largest private sector banks that we have after SBI in the country and obviously there would be concern that the regulator would have. So the regulator actually moved very swiftly, I would say unprecedented but so swiftly. One is it of course came out with a kind of clean chit that there are no issues and that also may have been the case because in the past there have been procedural issues at HDFC. And of course the transition or the merger of HDFC and HDFC Bank is moving at a slower pace completely because of the external environment. And because of all this I think RBI was responsible enough to have the board go and talk to RBI and after which the RBI came up not only with an affirmative statement but also with the appointment of an interim chairman within the same day. Unprecedented but I think it doesn't sound that RBI is worried but RBI wants to reassure and market needs reassurance because from what has happened we have clearly seen that the markets and even depositors as a result of that would have been a little jittery.

No absolutely it did seem like it seemed to reassure the markets, the stakeholders. But Amit Tandon, you know when the board says it has no idea what Atanu Chakravarti is referring to that he didn't elaborate when asked directly on these concerns does it suggest to you the board itself may not have been fully in the loop on whatever Atanu Chakravarti may have observed and have been concerned with and how are your own clients, these institutional investors that perhaps hold the HDFC stock reading this resignation letter.

Good evening Ritu and thanks for inviting me to your show. I'd like to say that you know it's the ambiguity on both sides. One is in the resignation letter that Atanu Chakravarti wrote to the bank as well as the fact that when the board kind of spoke about it they said they themselves have no clarity in terms of what the underlying issues or causes are and I think this is something which needs to be addressed. And I would say that the bank needs to, while the RBI has been supportive which is a good thing and has been kind of reassuring the market at this stage, investors do like to have some clarity. What they all hate is the fact that there is uncertainty on any aspect and therefore particularly if there's governance uncertainty it kind of erodes trust and even if you have good financial numbers will kind of turn around and say look can we trust the numbers. So therefore that uncertainty needs to be resolved at the earliest and that is the clarity which the market will be looking for moving ahead.

Sriram quickly, what will assuage the investors from here on? You have an RBI statement that is so rare coming out and say that you had the management clarify in the morning on the analyst call then again on the media con call transparently releasing that letter but we still saw the stock under pressure and of course we keep in mind that the markets were down overall as well but what do you think it'll take from here on the steps from here on for stakeholders, for investors to be assured that these issues have been put to rest.

Yeah, it is not that HDFC bank does not have issues. There are obviously news items that he was not supportive of the MUFG deal with investment in HDB financials. There is the AT1 bonds being missold in Middle East. That was an issue. So there are a number of issues. So the onus is on the board in particular the independent directors to step up to create a committee of independent directors also to investigate. It could well be a personality issue. It could well be a communication issue or it could well be smaller underlying issues which have not yet manifested to the board or to investors. So all these needs to be investigated by the committee of independent directors. Only when that report is out in the public and is shared only then will we all know the truth. At the end of the day management talking that there is no issue is because they themselves could be complicit for all we know. So at the end of the day it is an independent investigation or independent report that needs to be put out and that independent investigation needs to be headed by the committee of independent directors and somebody needs to step up there.

Interesting. Abizer would you concur that you need an independent committee, an independent investigation to really soothe the market nerves that you know bank, the stature of HDFC bank coming out to clarify there's nothing material, the regulator coming out to say that there is no governance concerns not enough. Do you really need an independent committee to look into this before the markets put this matter behind?

So the way I would look at it, I'm not sure whether an independent committee is required just as of now. Possibly what may be required and you know see I'm on a bank board. Normally what happens is when you get these kind of letters I would treat it like some kind of a complaint, some kind of a whistleblower letter. And if you treat it as that what I would end up doing as a bank director would actually be to say let's talk about what are the issues in the past. You look at all the board minutes. What are the issues that have been raised? It's confidential to the board. So let the board look at those, analyze and then figure out is there a revisit required and if a revisit is required then a mechanism is put in place to have that revisit done. I think not taking cognizance would be wrong. But first taking cognizance to figure out what to do and then taking appropriate action is what a normal board would do.

Okay. Amit would you concur with what Abizer is saying or with what Sriram was saying earlier and the fact that the bank has had a series of regulatory interventions just in the recent past, first you had that IT infrastructure concern, the credit card ban, the Dubai branch issue more recently, if anything does this letter from Mr. Atanu Chakravarti even without going into specifics suggest that some of these issues that were nagging they may not be behind just yet.

I'll come to the question. There is a great deal of what Sriram has said and what Abizer has said we need to go down that path and to my mind the most credible way forward is to facilitate a structured dialogue between Mr. Chakravarti and an independent whether you call it a board committee, independent agency or whoever it is to surface and examine what his concerns are and then publish the conclusions and then see and take it forward from there in terms of what needs to be done. Even if the process yields no findings or material misconduct, a transparent summary of what has happened matters. Unfortunately we're now living in a time when if the committee says there's nothing which we found that will not again have credibility but nonetheless that effort needs to be made to understand what the concerns are and that can only happen if Mr. Chakravarti and whether it's a committee of the board or independent agency or even if it is some people who worked with the central bank and other senior bankers in the past who kind of look into what was it that his concerns were because they need to bubble up and we need to be clear in terms of what is happening. I think in parallel what you need to do is Reserve Bank of India wants an independent chairman. So Keki Mistri has a term of three months. So the bank in parallel must quickly move to identify a permanent chairman with strong governance credentials who commands the confidence of both the regulators and the market and maybe if you don't have a committee this individual can have a conversation and decide what the next steps need to be but like Abizer said to just let it rest and say that look all this is over it's a one day affair that will not be the most prudent thing to do.

Well, clearly the matter has been far from put to rest. But gentlemen, do stay on. We have to slip into a short break, but we're back in just a moment to continue this conversation.

Okay, we still have Sriram Subramanian, Amit Tandon and Abizer Dwanji with us on the show. Abizer, you know Keki Mistri is stepping in just for a... actually gentlemen do hold on. We have Mr. Sashidhar Jagdishan who is the MD and CEO of HDFC Bank joining in on the phone line. Mr. Jagdishan, thank you very much for your time here. Let me just get right to it. You called it an unfortunate event on the con call earlier but Atanu Chakravarti actually served alongside you since 2021. He sat in the same boardroom meetings, reviewed the same numbers and he's left citing practices not in congruence with his values. As the person who was running this bank day-to-day did you not have any indication that this was coming?

Mr. Jagdishan since we understand there was friction between Mr. Chakravarti's style of working and perhaps what was expected out of that non-executive position, just for the benefit of our viewers if you could elaborate on how your working relationship, how would you describe your working relationship with Mr. Atanu Chakravarti given that he spent all this time since 2021 working with you.

Friction, between your two working styles.

Mr. Jagdishan if you could also address some of these concerns that have been voiced over social media regarding the sale of HDB Financial which eventually of course had to go IPO that there were disagreements with Atanu Chakravarti especially in relation with Mr. Kaizad Barucha as well that that was one of the big reasons for his disagreements with the working of the management and some of these ideas on the HDB issue specifically was there a concern that was raised by Mr. Chakravarti did he differ with the view of the bank on how to proceed on that matter?