The sudden resignation of its chairman, therefore, cannot be treated as an ordinary event
The abrupt exit of Atanu Chakraborty raises governance concerns at HDFC Bank, prompting calls for transparency and regulatory scrutiny.
HDFC Bank is not an ordinary listed entity. It is India’s largest private-sector bank and a systemically important body. It is also the second-most valuable company in the country, despite its stock being beaten down over the past couple of days. It is a widely held entity with foreign investors owning about a 48 per cent stake, while Indian institutional investors hold about 37 per cent. The sudden resignation of its chairman, therefore, cannot be treated as an ordinary event. Last week, Atanu Chakraborty, former secretary to the Department of Economic Affairs, resigned as part-time chairman and independent director, stating that certain practices of the bank were not in congruence with his personal “values and ethics”. Given what is at stake, the explanation is inadequate and raises concerns about governance at the bank. There are several related questions that Mr Chakraborty, the bank, and the regulator need to address immediately.
Banking is an inherently unstable business, with short-term liabilities and long-term assets. If a large number of depositors start withdrawing their deposits, no bank will be able to fulfil its obligations. In today’s connected world, this can happen even outside banking hours. Therefore, public trust in a banking entity must be actively maintained at all times. An abrupt exit at the top, along with possible governance concerns, can fuel rumours with potentially adverse consequences. Since the interests of millions of depositors and investors are involved, it is important to know about the bank practices that were not in line with the chairman’s ethical values. Further, did he raise those issues with the bank board? If yes, how, and what was the board’s response? It will also be important to know whether he approached the Reserve Bank of India (RBI) at any point.
Moreover, if things were not as desired for two years, what led to the resignation at this juncture, when the country and financial markets are grappling with a larger crisis? The stock markets are under pressure because of uncertainties related to the Iran war. The BSE Sensex, for instance, has fallen over 8 per cent in March so far. The last thing the markets need at this stage is governance issues at one of the largest of the listed companies. Further, since the RBI has a say in key appointments at private-sector banks — why there are such provisions is a different debate — it must also have a role in stopping abrupt exits. Was the regulator aware of the developments at the bank? The bank, on its part, did well to quickly appoint Keki Mistry interim part-time chairman and brief the regulator and investors. Mr Mistry has said that he would not have taken the responsibility if it did not align with his principles and the level of integrity he expects from the bank.
However, questions have been raised, and the bank has to open itself to further enquiries. It must let the stakeholders know the kind of concerns that were raised, if any, and what the management and the board did about them. Late last week, the bank asked three senior executives to leave, though it was unclear whether this was a consequence of Mr Chakraborty’s exit. As things stand, the regulator must probe the matter if it’s not already doing so, and inform the public about its findings at the earliest, along with the action taken by the regulator itself and the bank if there were gaps. The RBI must also make sure that such an abrupt exit does not happen again.
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