(Bloomberg) — HDFC Bank Ltd.’s search for a new chief executive after Sashidhar Jagdishan’s surprise decision to step aside will test whether India’s largest private-sector lender can restore investor confidence and move past lingering governance concerns.
The announcement on Saturday that Jagdishan — a three-decade HDFC Bank veteran — won’t seek reappointment puts to rest months of speculation that he was eyeing an extension. His final day is Oct. 26. The board has to seek approval from the regulator to appoint a CEO who can be an internal or external candidate.
Jagdishan’s decision comes as the lender confronts a slew of issues that have placed its governance practices under intense scrutiny recently. HDFC Bank’s part-time chairman made an acrimonious exit earlier this year, and the lender had been grappling with the historic fallout from Credit Suisse’s Additional Tier‑1 bonds.
Sashidhar Jagdishan decided to step down due to speculation about his reappointment and a series of governance issues that challenged investor confidence in HDFC Bank.
The selection of a new CEO is crucial for restoring investor confidence and addressing governance concerns that have intensified in recent months at HDFC Bank.
Investor confidence is essential during this transition to ensure stability and growth, especially given the bank's recent stock underperformance compared to its peers.
Post-merger, HDFC Bank faces challenges including managing a large pool of long-tenor home loans, which has negatively impacted its liquidity and profit margins.
During his tenure, Jagdishan is credited with overseeing significant growth and the merger with HDFC Ltd., while also navigating governance issues that have since surfaced.
Jagdishan took charge in 2020 when he succeeded Aditya Puri, who was at the helm for more than 20 years. He oversaw HDFC Bank’s balance-sheet expansion and its merger with the country’s largest mortgage financier in 2023.
“We believe that Jagdishan not seeking a reappointment removes the tail risk of him getting a truncated tenure by the RBI, which would have just prolonged the uncertainty and would have continued to weigh on the stock price,” said Rikin Shah, senior vice president at IIFL Capital. A credible external candidate could provide a leadership reset and a longer runway to steer the bank, he said.
While HDFC Bank is India’s most valuable lender, with a market capitalization of about $116 billion, its shares have underperformed the broader banking index and some of its biggest peers. They have fallen 27% this year, against a 3.5% decline in the Nifty Bank Index, marking their worst relative under-performance since 2003.
Last year, the bank was barred from on-boarding new customers at its Dubai branch after a local regulator flagged process lapses. In March, Chairman Atanu Chakraborty abruptly resigned, citing ethical differences. He later told Bloomberg News that concerns over how the bank handled the Dubai regulatory issues contributed to his departure.
HDFC Bank has denied any wrongdoing, while the Reserve Bank of India — the regulator— has publicly said there are no governance issues at the lender.
The scrutiny intensified after a media report alleged the bank had breached industry norms by effectively paying higher interest to a state-owned company and camouflaged it as marketing expenses. In July, the bank’s board penalized three top executives including Jagdishan after saying employees involved in setting deposit rates had engaged in “business overreach.”
The lender also faces a potential US shareholder lawsuit and allegations of mis-selling from investors, which the bank said it intends to “vigorously” defend.
