HDFC Bank seeks to steady nerves after Chakraborty exit; Mistry says ethics charge “defies logic”

MUMBAI: A day after HDFC Bank chairman Atanu Chakraborty resigned citing ethical concerns, the bank’s interim management has begun calming its nerves, saying the allegations are “counterintuitive” and do not indicate any financial problem.

Interim president Keki Mistry said on Thursday that discussions so far have not resulted in any operational or managerial disruptions. “Based on our discussions, there were no specific incidents or practices brought to our attention. There were no specific operational or other issues that were highlighted,” he said hours after he was elevated to the position.

In a separate statement, the bank said that although Chakraborty’s resignation letter was dated Tuesday, March 17, the letter was received at 3.17 pm on Wednesday, March 18.

On Wednesday, HDFC Bank said Chakraborty had resigned with immediate effect and in his letter to the board cited “certain events and practices within the bank” that were “incompatible” with his personal values ​​and ethics. The market’s reaction was swift: Shares fell as much as 8% on Thursday morning. ₹At 10:37 a.m., it fell 4.7% to 803.6 per capita.

“Believe me, at the age of 71, I would not have taken on this responsibility for three months if the systems, processes, management practices in the bank were not in line with my principles and level of integrity,” Mistry said. “I can only say that there has been no discussion to date about anything controversial in terms of governance at the board level.”

Mistry said the board met on Wednesday evening, following which some members met with the Reserve Bank of India, which subsequently approved his appointment as interim chairman for three months.

No irregularities observed, uncertainty remains

While analysts pointed out the short-term uncertainty, they stated that the response of the regulations showed that there was no serious disruption.

“We believe there are no financial irregularities or serious accounting issues as the RBI has allowed the appointment of Keki Mistry as interim governor. Secondly, Atanu (Chakraborty) has made specific references to personal standards rather than accusations of financial improprieties,” analysts at Bernstein said in a note on Thursday.

Bernstein said the stock is currently trading at or below the Covid-19 level, but warned that the recovery from these allegations could be slow and investors will await clarity on whether regulators will launch further investigations.

Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital, said underperformance could continue in the short term. While fundamentals remain strong with good returns on assets, governance concerns will weigh heavily on the stock at this point.

“Investors will want more comfort from the board. Also, now the uncertainty around the reappointment of Sashi (CEO Sashidhar Jagdishan) will also put pressure on the stock,” said Ganapathy.

Mistry said the board remained vague on the details behind Chakraborty’s remarks. Members asked for clarification, but he said he “didn’t make any specific statements.”

Another board member told investors that Chakraborty had told him there were no regulatory concerns.

“(He said) It might be my value systems that are different, etc., but he didn’t say anything about the regulatory aspects of the bank. Everything was fine, he agreed. In fact, we asked him repeatedly to tell us why, the reason behind it, but he said there was nothing and it was a bit surprising,” an unidentified board member said during the analyst call.

When asked about board dynamics, Mistry said differences may arise but are not significant. “There has never been any complete disagreement or anything like that at any board meeting. And the board minutes will reflect that. People are people and there will always be some relationship issues between individuals,” Mistry said.

Chakraborty, who joined the board in May 2021, said in his resignation letter that his tenure “has witnessed significant events such as the merger of the bank with HDFC Ltd and the creation of a holding company under the bank.” This strategic initiative has made HDFC Bank the second largest bank in the country. “But the benefits of the merger have not yet fully come to fruition.”