The controversy surrounding HDFC Bank refuses to die down following the sudden resignation of its part-time Chairman and independent director Atanu Chakraborty, last week. In his resignation letter, he cited “certain happenings and practices within the bank” over the past two years that were not aligned with his personal values and ethics. The remarks rattled investors, dragged down the stock and ignited intense debate across . Regulators both Reserve Bank of India and Securities and Exchange Board of India have taken cognisance of the issue and are actively reviewing and investigating the matter further.
Eyebrows were raised over the way the disclosures were made, with many feeling that what was left unsaid in the letter allowed room for speculation about the company’s corporate governance practices.
An independent director is expected, among other responsibilities, to uphold high ethical standards of integrity and probity, act objectively and constructively in the discharge of duties, and perform responsibilities in a bona fide manner in the best interests of the company. Additionally, they must remain free from extraneous influences and refrain from abusing their position.
LODR regulations
Since the introduction of independent directors in 2000, has continuously reviewed and updated its LODR regulations to reflect evolving corporate governance standards, making them increasingly comprehensive and prescriptive.
In fact in 2021, after due consultation, SEBI has made it mandatory that the entire resignation letter of an independent directors should disclosed to the stock exchanges along with a list of his/her present directorships and membership in board committees.
Pandey’s views
SEBI chairman Tuhin Kanta Pandey recently said that independent directors are required to follow well laid-down processes to flag concerns.
“No one is expected to make insinuations without proper evidence and recordings,” he said on the back of HDFC Bank issue. “Where independent directors have any concerns about the running of the company… ensure that they are addressed by the board… and if not resolved, insist that their concerns are recorded in the minutes.”
Further, concerns relating to “unethical behaviour, actual or suspected fraud, or violation of the company’s code of conduct” must be formally recorded, he said. “We can’t keep things vague,” he said
Pandey further said there is a clear framework under the LODR regulations and the Companies Act for independent directors.
Fire fighting is also happening from HDFC Bank to rebuild its brand image by enhancing corporate governance and transparency as it appointed external law firms to examine the resignation letter.
As SEBI chief said Independent directors should be more assertive in board and other committee meetings, ensuring their views and dissents are clearly expressed and formally recorded.
Following this episode, greater attention will be given to the role of independent directors, which is beneficial as it helps strengthen corporate governance.
It is hoped that the ongoing probes by regulators and other authorities will bring the full facts to light soon. Until then, HDFC Bank and its shareholders will continue to face damaging speculation, which is hurting both the institution’s reputation and its stock price. A swift resolution would provide significant relief to all stakeholders.