India’s largest private sector bank, HDFC Bank, has long been regarded as a model of corporate governance in the Indian financial system. However, the developments during the past few days has raised concerns about the practices in the post-Aditya Puri world. The bank which was considered a model of corporate governance is now facing a challenge to resurrect its reputation and regain investors’ confidence.
The troubles for HDFC started after its non-executive chairman Atanu Chakraborty abruptly resigned earlier this week, citing differences over “values and ethics”. These words in his resignation shocked many as over the past 3+ decades, HDFC had built a reputation based on its ethics and values and steered clear of any major controversies.
Atanu Chakraborty had joined the bank as non-executive Chairman with his vast experience and impeccable reputation. A retired IAS officer of 1985 batch, Chakraborty has previously served as Economic Affairs Secretary in the Ministry of Finance, along with holding various positions in Ministries of Ports, Industries, Petroleum and Natural Gas, Labour, and Home.
The share prices of the bank fell immediately after this high profile resignation, and that too over ethical grounds. With world markets already in chaos due to Iran war, it was a double whammy for the bank.
As if that wasn’t enough to jolt the bank, news of mis-selling of AT-1 bonds issued by Credit Suisse through offshore branches came to light. Three top executives have been asked to leave the company for their alleged involvement in this mis-selling.
Sampath Kumar, group head of branch banking, Harsh Gupta, executive vice president, Middle East, Africa, and NRI onshore business, and Payal Mandhyan, senior vice president, have been asked to leave as the bank continues to probe these allegations.
A bank that was referred to as the gold standard of how to run a bank, is now scrambling to save that reputation after the resignation of the non-executive Chairman and the mis-selling of AT-1 Bonds controversy.
These developments at the bank have raised alarm bells across the financial sector as HDFC Bank is designated by the Reserve Bank of India as a Domestic Systemically Important Bank (D-SIB). This means that problems within the institution could potentially have broader implications for the entire banking system.
Internal power struggle in HDFC bank caused this crisis?
Another key player at the center of the controversy surrounding the bank is Managing Director and CEO, Sashidhar Jagdishan. After Chakraborty’s sudden resignation, speculation became rife that there was internal discord between Chakraborty and Jagdishan. The claims were that they had differences over governance and operational matters. This friction regarding management decisions and senior-level appointments, as well as broader disagreements about how the bank should be run reportedly led to Chakraborty’s resignation.
However, Jagdishan came out and denied these rumours. In an interview with CNBC, Jagdishan said, ““There was no friction between me and Atanu… our relationship has always been very cordial. We are a democratic institution… there will be differing views. I have a different thought process, have agreed to disagree on occasions.”
The HDFC CEO also stressed that the bank’s core remains strong. He also said that there was no immediate trigger for the Chairman’s resignation.
Some financial observers believe that the disagreements between the top management started after the merger of HDFC Bank and HDFC Ltd in 2023. The merger created a banking giant with massive scale after one of the largest transactions in Indian history.
However, managing such a huge entity is also a herculean task. Reportedly, people in the senior management have different ideas on how to manage this new giant and that led to the fall out. Has this mega merger created more problems than benefits for HDFC?
The AT-1 bonds mis-selling Controversy
Another issue that intensified the ongoing crisis at the banking giant was the discovery of alleged mis-selling of AT-1 bonds to clients.
An internal investigation revealed that several executives sold risky Additional Tier-1 (AT-1) bonds issued by Credit Suisse to non-resident Indian clients through offshore branches, particularly in the UAE. These bonds were reportedly marketed as relatively safe products despite their high risk.
AT-1 bonds are designed to absorb losses during financial crises. However, in the case of Credit Suisse’s collapse in 2023, such bonds were written down to zero, wiping out investors. Customers complained that they had not been fully informed about the risks before investing in these bonds.
The final findings of this investigation are yet to come out, but for a bank that built its reputation on transparency, even such allegations are deeply damaging.
Can Keki Mistry revive investors’ confidence?
Following Atanu Chakraborty’s resignation, 70-year-old Keki Mistry took over as the Chairman of the bank. Mistry joined HDFC in 1981 and has since rose through the ranks to become the Chairman in 2026.
After taking over, Mistry was quick to try and reassure the investors that all is well at the bank. Mistry added that there are no material concerns and that the board remains committed to maintaining confidence in the country’s largest private-sector lender.
However, it will take more than a statement to take investors’ trust in HDFC Bank back to the level seen till 2020.
HDFC’s troubles started after Aditya Puri stepped down
Aditya Puri, a giant of Indian banking industry, transformed HDFC Bank from a small new private sector lender into India’s most valuable bank. He led the bank from 1994 to 2020 when he decided to step down from his post as the Chairman of the bank.
Interestingly, that is when the problems began. These problems included penalties for deposit rate violations, procedural deficiencies at overseas branches, and restrictions on issuing new credit cards due to persistent IT outages between 2020 and 2022.
While they were small problems for a bank the size of HDFC, the recent controversies have raised the question that has something fundamentally changed in the functioning of HDFC?
During Puri era, the bank maintained cooperative and transparent relationship with both customers and regulators, had strong risk management culture, and enjoyed stable leadership. All that seems to be under question now.
However, if the bank succeeds in addressing the current issues transparently, this crisis may ultimately prove to be a temporary setback rather than a fundamental breakdown.
