MUMBAI: A day after HDFC Bank chairman Atanu Chakraborty resigned citing ethical concerns, the bank’s interim leadership moved swiftly to steady nerves, saying the allegations “defy logic” and flag no material issues.
Interim chairman Keki Mistry said on Thursday that discussions so far had thrown up no operational or governance lapses. “Based on our discussions, there were no specific happenings and practices that were brought to our attention. There were no specific operational or other issues that have been highlighted,” he said, hours after being elevated to the role.
The bank said in a separate statement that while Chakraborty’s resignation letter was dated 17 March, it was received at 3:17 pm on Wednesday, 18 March.
On Wednesday, HDFC Bank said Chakraborty had stepped down with immediate effect, with his letter to the board citing “certain happenings and practices within the bank” that were “not in congruence” with his personal values and ethics. The market reaction was swift: shares fell as much as 8% on Thursday morning and were at ₹803.6 apiece, down 4.7% at 10:37 am.
“Believe me, at the age of 71, I would not take on this responsibility for three months if the systems, processes, governance practices in the bank did not align with my principles and my level of integrity,” said Mistry. “I can only say that at the board level, there has never ever been any kind of a discussion on any matter which is contentious in terms of governance.”
Laying out the timeline of events, Keki said that the bank had a board meeting last evening which he attended virtually from New Delhi. After the meeting where Chakraborty resigned, some board members met the Reserve Bank of India (RBI). The regulator then gave its approval to appoint Mistry as an interim chairman for three months.
Analysts are optimistic that there are no major issue at the bank.
“We believe there are no financial irregularities or serious accounting issues given (that) RBI allowed appointment of Keki Mistry as the interim chairman. Second, (there are) specific references to personal standards by Atanu (Chakraborty), rather than accusations of financial irregularity,” analysts at Bernstein said in a note on Thursday.
Bernstein believes that the HDFC Bank stock was already very cheap — at or below covid-19 level valuations — but recovery from these allegations would be hard and not immediate. Further, investors will likely wait to ensure that this doesn’t trigger any investigations from regulators that could take longer to conclude, it said.
Suresh Ganapathy, managing director, head of financial services research, Macquarie Capital said that near-term underperformance may remain. While fundamentals remain strong with good return on assets, at this point in time governance concerns will weigh down heavily on the stock.
“Investors would want more comfort from the board. Also now the uncertainty surrounding Sashi’s (CEO Sashidhar Jagdishan) reappointment will weigh down on the stock,” said Ganapathy.
Mistry said that none of the board members are aware of what the specific issues are which Chakrabarty wrote in his letter. The board members, he said, asked him yesterday and he did not give any specific explanation.
Another board member told investors that everyone asked Chakraborty yesterday about the reasons behind his letter and he said that personally he has no issues.
“It could be my value systems, etc., which are different, but he didn’t say anything on regulatory aspects of the bank. It was all sound, he agreed. In fact, we had repeatedly asked him to tell us why, what is the reason behind this, but he said there was nothing and that is a bit baffling,” said a board member who could not be identified over the analyst call.
Asked about differences of opinion at the board level, interim chairman Mistry said that differences on minor issues do come up from time to time but there was nothing material whatsoever.
“In no board meeting has there been any kind of complete differences of opinion or anything of that sort. And the board minutes will reflect that. Human beings are human beings and there will always be some relationship issues between individuals,” said Mistry.
Meanwhile, Chakraborty, who had joined the board of HDFC Bank in May 2021, said in his resignation letter that his tenure saw “momentous events like merger of the bank with HDFC Ltd that created a conglomerate under the bank.” “This strategic initiative made HDFC Bank the second largest bank in the country. Though, the benefits of merger are yet to fully fructify.”