Back-to-Back Trouble for HDFC Bank but this Expert Remains Bullish

In a major development following Sashidhar Jagdishan’s decision not to seek reappointment, the bank has formally begun the process to select the next Managing Director (MD) and Chief Executive Officer (CEO). According to Reuters, the bank is considering Deputy MD Kaizad Bharucha and an external candidate for the top position.

Jagdishan's Exit

Jagdishan, on Saturday, said that he will not seek reappointment when his current term ends in October, and will retire from the bank after nearly three decades. He first took over as the CEO in October 2020, succeeding Aditya Puri, and went on to become the longest serving CEO, with his reappointment for a second three-year term in 2023.

The bank, however, said in an exchange filing that while it persuaded Jagdishan to stay, he held his ground. 

Following the announcement, HDFC Bank's board said it would fast-track the process of selecting and appointing his successor, which is expected to be in place before Jagdishan steps down. Bank boards typically need regulatory clearance from the Reserve Bank of India for the appointment of a new CEO. 

Search for Next MD & CEO Begins 

Back in 2020, Bharucha was among the candidates who ran for the CEO position, but he lost out to Jagdishan who succeeded Puri. Bharucha joined the bank's board in 2014 and has been the longest-serving executive board member, with over two and a half years still left before hitting the RBI's 15-year cap on whole-time directors. He still has enough runway to serve at least one term as CEO. 

Analysts believe that the successor could be an internal candidate. In an interview with the Republic Business, Gurmeet Chadha, Managing Partner & CIO at Complete Circle, a wealth management firm, said, “Assuming that the succession will be smooth, the bank has a lot of bench strength and I think the next MD and CEO will be internal.”

“They have a lot of issues and sometimes the right thing to do is to get a new leader and move on," he added. 

‘Precursor to a Positive Trigger’

The succession process comes amid a turbulent stretch at the largest private lender. Its stock has fallen 27-28% since the start of the year, with a large share of the decline following the sudden resignation of former chairman Atanu Chakraborty in March, over governance concerns.

A June external review found no evidence to substantiate the governance issues Chakraborty had raised, though executive departures and regulatory scrutiny have continued.

In July, the bank's board penalised three top executives, including Jagdishan, after finding that employees were involved in setting special deposit rates for a state agency. Recently, several U.S. law firms filed a proposed federal securities class-action lawsuit against the bank.

However, Chadha remains bullish on the bank for the long-term. 

“The stock might react in the short-term but the leadership change can be a turnaround, and trigger a positive sentiment. HDFC has had a very glorious past, asset-quality-wise, it’s pristine. In fact, all the integration issues are now left behind the merger. Now I think they can really press the pedals of growth.” he said.

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