Just two months into his tenure as chair of HDFC Bank Ltd., Rajiv Kumar wasted little time in pushing for changes at India’s most valuable bank.
He outlined several measures to Chief Executive Officer Sashidhar Jagdishan: accelerate loan growth, get more aggressive on technology, address the legacy issues, and replace some of the senior executives surrounding the CEO, people familiar with the matter told Bloomberg News.
Jagdishan, a veteran of three decades at the bank, resisted some of the proposed changes. Rather than push out bankers he supported, , the people said.
The surprise decision, announced at a hastily convened board meeting Saturday, sent shock waves through the bank. It added to turmoil that has dogged the firm in recent years and contributed to a slide that has made it this year.
The account of the events leading to Jagdishan’s decision to step aside is based on conversations with more than half a dozen people involved in the transition, who asked not to be identified discussing private deliberations.
Kumar and Jagdishan did not respond to queries from Bloomberg News. A spokesperson for HDFC Bank declined to comment on possible future developments at the lender, citing the bank’s policy.
A veteran civil servant and former finance secretary, Kumar, 66, was appointed in June to steady the ship at HDFC Bank after the previous chairman’s acrimonious resignation sparked questions over governance issues at India’s largest private-sector lender.
Kumar is hardly a stranger to banking. He spent just over two years running the Department of Financial Services during one of the most difficult periods for the country’s state-owned lenders. He helped drive their cleanup as bad loans and capital shortages threatened to choke credit, spearheading a consolidation that reduced 27 public-sector banks to 12.
He later became India’s chief election commissioner, overseeing the 2024 national vote in which more than 640 million people cast ballots.
Dramatic Changes
His recent demands signaled Kumar was seeking dramatic changes at HDFC Bank, and expected Jagdishan to come around.
Instead, Jagdishan responded by telling colleagues that he would not seek a third term, people familiar with the matter said. A board meeting was convened on short notice for Saturday, where Jagdishan formally announced his decision, according to the people.
Directors tried to change his mind, according to the people. When Jagdishan held firm, a formal announcement was drawn up and sent to the stock exchanges in the evening.
The speed of his departure caught HDFC Bank off guard. Its nomination and remuneration committee hadn’t even engaged an executive search firm to find a successor. The bank plans to bring in recruiter Egon Zehnder as soon as this week, setting off a hunt that could reshape far more than the CEO role.
Kumar favors an outsider for the job. He has reservations about the bank’s internal contenders, whom he doesn’t consider aggressive enough to deliver the faster growth and sharper execution he wants, the people said.
Read: HDFC Bank Shares Reverse Gains on CEO Succession Concerns
The abrupt pivot is the culmination of months of tension inside a lender once synonymous with orderly succession and management stability. Aditya Puri ran HDFC Bank for more than two decades. Senior executives stayed for years and successions were carefully managed.
This recent overhaul gives Kumar an unusual opportunity. With some veteran directors approaching the end of their tenures, the new chairman could end up reshaping HDFC Bank’s board and executive ranks, restoring its governance credentials and putting his strategy into effect at the same time.
For Jagdishan, the CEO for the past six years, the road to Saturday’s dramatic events had personal elements to it, too.
The deeply religious man is a devotee of Lord Krishna, one of Hinduism’s most revered deities and the guide at the heart of the sacred Bhagavad Gita text. As questions mounted over whether he would get another term as CEO, Jagdishan spent months praying for guidance about what to do next, the people said.
Jagdishan told people close to him that he was willing to continue as CEO, but only if the institution and the regulator were behind him. He wouldn’t campaign for an extension, lobby directors or bargain for the job. He would let the process play out.
Some directors he consulted gave him a more nuanced message: board support alone wouldn’t be enough, they told him. He also needed the executive leadership behind him.
‘Business Overreach’
Jagdishan’s tenure has been marked by regulatory and governance problems, ranging from lapses involving the bank’s Dubai operations to controversy over its handling of certain deposits, to being pulled up by the regulator about its digital platforms.
In July, HDFC Bank’s board penalized Jagdishan and two other senior executives after finding that employees involved in setting deposit rates had engaged in “business overreach.” Earlier this year, former Chair Atanu Chakraborty stepped down, citing bank practices that didn’t align with his “personal values and ethics.”
There were also leaks. Details of internal discussions and problems at the bank had been finding their way to the media, the people said. Jagdishan came to believe some of those were intended to undermine his chances of securing another term, according to some of the people.
HDFC Bank has denied wrongdoing in relation to some allegations, including corporate governance concerns, while the Reserve Bank of India has publicly defended the lender.
Inside the RBI, however, senior officials held differing views about whether Jagdishan should continue, the people said. Some deputy governors were supportive of another term, while others had reservations given the series of issues, the people said.
A spokesperson for the RBI did not respond to queries from Bloomberg.
The uncertainty was also taking a toll on HDFC’s stock price.
The shares have fallen 28% this year, compared with a 3% decline in the Nifty Bank Index, their worst relative performance since 2003. More than $60 billion in market value has been erased from its peak last year, and the shares now trade at their lowest since February 2024.
The lender has struggled to regain the premium investors once routinely awarded it since its 2023 merger with Housing Development Finance Corp. The transaction left the combined bank with a large pool of long-tenor home loans and put pressure on liquidity and margins.
Jagdishan, 61, will leave when his term expires Oct. 26, putting HDFC Bank on a tight timetable. Any successor requires RBI approval, and a leader capable of running a lender with a market value of about $115 billion may take time to identify and vet.
That may force Kumar into a compromise. A current bank executive could get a relatively short stint as CEO, potentially about a year, while the lender searches for a longer-term leader, the people said. Deputy Managing Director Kaizad Bharucha is being discussed by analysts as the most obvious internal candidate.
Analysts are divided over what comes next.
Jefferies Financial Group Inc. cut its 12-month price target by 16%, warning that further departures from top management could hurt deposit growth and revenue momentum.
“This can impact business and performance in the near term,” analysts Prakhar Sharma and Vinayak Agarwal wrote. “Uncertainty can lift cost of equity, leading to lower valuation.”
Rikin Shah, senior vice president at IIFL Capital Ltd., said Jagdishan’s departure removes the risk that the RBI might have granted him a truncated extension, prolonging the uncertainty hanging over the shares. A credible external candidate could provide a leadership reset and a longer runway to steer the bank, he said.