HDFC Bank clears governance hurdle for chief executive officer renewal

HDFC Bank's legal review finds no evidence behind governance allegations, clearing path for leadership stability, chairman appointment and CEO term extension

HDFC Bank’s independent legal review, which found no evidence to substantiate allegations made by former part-time chairman Atanu Chakraborty in his resignation letter, has removed a key overhang for the lender. Brokerages earlier said the development paves the way for the appointment of a new chairman and the renewal of Managing Director (MD) and Chief Executive Officer (CEO) Sashidhar Jagdishan’s current term, which ends in October this year. Later in the day, Rajiv Kumar was appointed as part-time chairman of the private lender for a period of three years. 

“With the legal review concluding favourably and the Reserve Bank of India (RBI) having previously identified no material concerns, we believe the path is now considerably clearer for MD and CEO Sashidhar Jagdishan, whose current term expires on October 26, to secure a further three-year extension,” said Macquarie Research in a note. It added that the completion of the review should allow the board to turn its attention to other important governance matters. 

Jagdishan was first appointed as MD and CEO in October 2022, taking over from Aditya Puri, for a three-year term. In 2023, his term was extended for another three years. 

“In our view, achieving clarity and stability across the bank’s senior leadership ranks serves as a positive catalyst, allowing management to redirect focus from navigating governance-related distractions towards driving business momentum and restoring a full business-as-usual operating cadence,” the note said. It added that the review’s conclusions serve as an endorsement of HDFC Bank’s governance architecture. 

Shares of the lender were largely flat on Monday, closing 0.37 per cent higher at ₹799 on the BSE. 

Another brokerage, Jefferies, earlier said the legal review was a relief for investors and could pave the way for the bank to appoint a new chairman and renew Jagdishan’s term as CEO. 

“Clarity on this matter lays the path for CEO renewal and acts as a rerating catalyst. We believe that clarity on this matter will allay investors’ concerns,” Jefferies said. HDFC Bank has underperformed its peers since Chakraborty’s resignation on March 18, with the stock declining 6 per cent while the Nifty Bank index has gained 5 per cent. 

Last week, the lender informed the exchanges that the legal review it had commissioned found that Chakraborty’s allegations in his resignation letter were “not substantiated.”