HDFC Bank’s credibility problem is bigger than its CEO transition

HDFC Bank’s leadership transition comes at an uncomfortable time for the country’s largest private sector lender.

Sashidhar Jagdishan’s decision not to seek another term as managing director and CEO would ordinarily have been viewed as a routine succession issue. It is anything but routine given the questions that have accumulated around the bank in recent years.

The bank has faced controversies involving GPS-linked products, concerns over certain assets following the HDFC merger, allegations relating to the Lilavati Hospital, alleged mis-selling of perpetual bonds in its Middle East operations, the MSRD loan bribery case and, more recently, the Carlisle episode.

Individually, these may have different explanations and outcomes. Taken together, however, they have begun to raise a larger question about the governance culture at an institution that built its reputation precisely on being conservative and professionally managed.

The resignation of former chairman Atanu Chakraborty in March was particularly significant. Chakraborty cited an “incongruence” between certain internal practices and developments at the bank and his personal values and ethics. He did not identify the specific issues. That left the market to draw its own conclusions.

The circumstances surrounding Jagdishan’s departure have added to the uncertainty. The bank said on August 29 that the CEO had decided not to seek a third term and that the Board had accepted the decision after he reiterated his position despite its persuasion.

That is striking because Jagdishan had reportedly told Business Standard in March that he was “willing and raring to go for a new term”.

The obvious question is what changed in those five months. Unless the bank provides a convincing explanation, speculation about the reasons for the departure is unlikely to disappear.

This is not merely a communications problem. For a bank, credibility matters as much as capital.

The succession process will therefore be watched closely. An internal candidate such as DMD Kaizad Bharucha offers continuity, but his remaining tenure within the RBI’s 15-year ceiling for whole-time directors is a constraint. An external candidate could bring a fresh perspective, but changing the leadership and culture of a bank of HDFC’s scale carries its own risks.

The more immediate task for the new leadership, however, will be to restore confidence in the institution’s governance.

HDFC Bank’s strongest franchise asset has never been just its balance sheet. It has been the confidence that customers, employees, investors and regulators have placed in the institution.

That confidence gets tested when questions keep surfacing and answers appear inadequate.

The bank does not need to accept every allegation made against it. It does, however, need to explain its position clearly and address legitimate questions without appearing defensive or evasive.

A governance problem can sometimes be contained. A credibility problem is harder to contain because it compounds with every unanswered question.

The new leadership has an opportunity to draw a line under the recent controversies. That will require more than appointing a new CEO. It will require demonstrating that transparency, accountability and predictable governance remain non-negotiable at HDFC Bank.

The transition at the top, therefore, should not just be about who succeeds Jagdishan. It should be about whether HDFC Bank can rebuild the institutional trust that made its franchise what it is today.