Shares of HDFC Bank witnessed a slump on Thursday as concerns over legal, regulatory and leadership issues continued to weigh on investor sentiment.
At the market close, the stock was down 2.08% at Rs 712, well below its 52-week high of Rs 1,020.50 hit in October last year.
One of the key concerns for investors is a possible class-action lawsuit in the US over alleged illegal payments of Rs 45 crore to the Maharashtra State Road Development Corporation to encourage large deposits, reported Reuters.
On August 13, Glancy Prongay Wolke & Rotter and the Law Offices of Howard G Smith filed a proposed federal securities class action against HDFC Bank and two of its executives in a US District Court.
Several other law firms have also issued alerts to HDFC Bank investors regarding the proposed case.
HDFC Bank has rejected the allegations and said it plans to defend itself against the lawsuit. The bank has also pointed out that shareholder lawsuits of this nature are common in the US after a company’s share price falls.
Market experts believe the lawsuit could remain a short-term concern for the stock until more details emerge.
The bank is also facing questions over a separate matter involving customers who bought Carlisle’s Luxembourg Life Fund through HDFC Bank’s Dubai operations.
Mint reported earlier this week, citing investors, that more than 75 clients were planning to approach the Indian Prime Minister’s Office, the central bank and overseas regulators over alleged mis-selling, losses and delays in redemptions, the report mentioned.
HDFC Bank has said it does not provide advice on third-party products and that customers are responsible for making their own informed investment decisions.
Leadership uncertainty is another issue weighing on HDFC Bank shares.
The lender’s part-time chair resigned abruptly in March, citing ethical differences with the management. The resignation had led to a decline in the bank’s shares at the time.
There is also uncertainty over the tenure of CEO Sashidhar Jagdishan, whose current term ends on October 26.
Macquarie has said that a temporary extension could prolong concerns over succession and put further pressure on the stock. A three-year renewal, on the other hand, could remove an important uncertainty.
HDFC Bank has not responded to a query about the CEO’s reappointment.
Meanwhile, for investors, the combination of the legal case, customer complaints and uncertainty over the bank’s leadership has added pressure to a stock that has already seen a sharp decline this year.