Three years on, HDFC Bank is in the headlines — caught up in the swirl of the issues flagged back then.
Even in the case of both Aditya Puri at HDFC Bank and Romesh Sobti at IndusInd Bank, finding their successors took time.
Also, there have been deficiencies in compliance.” Mint Road had censured HDFC Bank for technology outages and barred it from issuing new credit cards and fresh launches.
Only, the irony has grown starker: HDFC Bank’s board fined Jagdishan and two of his senior colleagues ₹1 lakh each.
The next corner-office occupant at HDFC Bank may do well to follow in Jagdishan’s footsteps: Apologise for the shortcomings in a note to shareholders.
In May 2023, the then Reserve Bank of India (RBI) governor Shaktikanta Das met with the board of directors of state-run and private banks. The first-of-its-kind, day-long interactions saw deputy governors and the executive directors of the Department of Supervision, Department of Regulation and Department of Enforcement take up issues relating to governance, ethics, the role of the boards and supervisory expectations. (The exercise was repeated in 2024.)
Three years on, HDFC Bank is in the headlines — caught up in the swirl of the issues flagged back then.
First, Atanu Chakraborty quit as the bank’s chairman. “Certain happenings and practices within the bank, that I have observed over the last two years, are not in congruence with my personal values and ethics,” he said in his resignation letter. On its part, Mint Road held that: Based on “our periodical assessment, there are no material concerns on record as regards its conduct or governance. The bank remains well-capitalised and the financial position of the bank remains satisfactory with sufficient liquidity.”
Then, HDFC Bank’s board under a new chairman Rajiv Kumar, in July this year, slapped a fine of ₹1 lakh each on Sashidhar Jagdishan, the lender’s managing director (MD) and chief executive officer (CEO), and two of his senior colleagues: Srinivasan Vaidyanathan, chief financial officer, and Arvind Vohra, group head, retail assets. It was the first such action in India Inc. Even as it was clarified that based on the findings and recommendation of the Special Disciplinary Committee of Independent Directors, the board had concluded that “the conduct of the employees involved constituted business overreach rather than any mala fide action, personal enrichment, or improper motive.” Jagdishan did not resign and there was nothing to suggest (in the public domain) that he had not offered himself for a third term (his second is to conclude next month: on October 26).
Long-festering issue
What are the happenings at HDFC Bank symptomatic of? Mint Road’s direction in October 2023 that private banks must have at least two whole-time directors (WTDs), including the MD and CEO, was to take care of succession. But the problem continues: This came to the fore with the sudden exits of Sumant Kathpalia at IndusInd Bank, and Srikrishnan Hari Hara Sarma at Karnataka Bank. Prior to the circular, hiccups were caused when Shikha Sharma moved out at Axis Bank, Chandha Kochhar at ICICI Bank and Rana Kapoor at Yes Bank. Even in the case of both Aditya Puri at HDFC Bank and Romesh Sobti at IndusInd Bank, finding their successors took time. While neither of them had formally sought an extension, back-channel talks with RBI were done. This was on whether the age limit for WTDs on private bank boards could be raised to 75 years from 70 to bring it in alignment with the Companies Act (2013).
“Succession planning needs more attention. While you can’t plan for every eventuality, it also can’t be that this aspect gains urgency closer towards the end of the term of an MD and CEO. Succession planning remains on circulars. HR (human resources) does not appear to be a priority,” says M Damodaran, chairman of Excellence Enablers, a corporate governance advisory firm, and former chairman of the Securities and Exchange Board of India. “Regulation should not translate to micromanagement. Boards must be empowered and then held to account if they do something majorly wrong.” What is unsaid here is that willy-nilly, the RBI ends up running bank boards.
In the case of HDFC — a systemically important bank — wholesale changes in its top batting order is on the cards. It has never happened in any bank before. Kaizad Bharucha, the deputy MD who is being spoken of as a successor to Jagdishan is handicapped by RBI’s 15-year cap (as a WTD, or 70 years, whichever is earlier; this applies to MDs & CEOs of all private banks), given his 2013 appointment. V S Rangan’s term as executive director (ED) ends in November 2026 even as a successor to Bhavesh Zaveri (who retired as ED earlier in April) remains undecided. Kumar has only recently taken over as chairman, while the nomination and remuneration committee members, Sandeep Parekh and M D Ranganath, are near their term limits (January 2027). This highlights the fragile succession pipeline and how CEOs routinely deprioritise it.
“If the retirement age in an organisation is 60 years, and a 59-year-old gets appointed for five years, they can continue till 64. But giving another five-year term at that age further embeds them in the organisation and may cause vulnerabilities”, notes Amit Tandon, founder and MD of IiAS, a proxy advisory firm. This is because “the immediate next level of leaders has little incentive to continue and those a level below is not yet ready, perpetuating the myth that the existing leader is irreplaceable”.
This is exactly what Das had forewarned in May 2023: “We have noticed the dominance of CEOs in board discussions and decision-making. It has been seen in such cases that boards are not asserting themselves…We would not like this type of situation to develop.” But to be fair, Jagdishan did not have cult status like his mentor, Puri.
“Banks have treated succession as an event to be managed when it arrives, rather than a muscle to be built years in advance…HDFC Bank has just been put through that test in public and the early evidence is far from inspiring,” says Rishi Agrawal, cofounder and CEO of Teamlease RegTech, which provides regulatory technology solutions. The RBI expects succession proposals at least four months before a vacancy, and “a board that finds itself trying to accomplish it in half that time is demonstrating that a foreseeable event was not foreseen.”
Related aspects that may need a relook are “the absence of an identifiable promoter group, or a single large institutional investor. We may also need to look into the issue of voting rights caps. I also feel that if an MD and CEO is good, why cap their tenure,” holds S C Garg, former union finance secretary.
It will also put the focus back on Mint Road’s Governance Amendment Directions, 2026, (effective 1 October). In RBI’s words: “…to enable the Boards to utilise their time effectively, and to facilitate a more focused and qualitative engagement on strategy and risk governance…”
Vandana Pai, senior partner at Bharucha & Partners, says: “To me, this is a more robust approach designed to incentivise good governance. The fact that the directors must exercise judgement to accord with and implement the principles in all circumstances is a consequence of the RBI’s design imperatives which have informed these amendments.
That said, as Pai views it, nothing operates in isolation. A board can set policies and guidelines, supervise and approve. “However, the implementation (of these policies and guidelines) must necessarily rest on management and employees and nothing, not even a principles-based design imperative, will change that.” What she adds next is critical: “Several adverse consequences can result, including an increased reluctance to hold office as director and effective board paralysis.”
Meanwhile, earlier in January, South Indian Bank’s MD & CEO P R Seshadri decided not to seek reappointment after his term ended on September 30. However, the bank moved quickly, and in early July, it received the RBI's approval for appointment of Mahesh Pai as the new MD & CEO for a three-year period effective October 1.
Kotak Mahindra Bank earlier this year told stock exchanges that its MD and CEO, Ashok Vaswani, does not wish to seek reappointment after the completion of his term on December 31, 2026. Vaswani assumed office on January 1, 2024, for a three-year term approved by the RBI in October 2023.
Corner-office challenge
The irony is that Jagdishan, in his first note to shareholders (in the bank’s FY21 annual report) after moving into the corner office, had flagged the shortcomings. “In the last 28 months, we have been in the spotlight for the wrong reasons when it comes to technology. Also, there have been deficiencies in compliance.” Mint Road had censured HDFC Bank for technology outages and barred it from issuing new credit cards and fresh launches.
The RBI issued a show-cause notice on the arrangement with a vendor, contending that it violated provisions of the Banking Regulation Act, 1949 and slapped HDFC Bank with a ₹10-crore penalty. Only, the irony has grown starker: HDFC Bank’s board fined Jagdishan and two of his senior colleagues ₹1 lakh each.
The next corner-office occupant at HDFC Bank may do well to follow in Jagdishan’s footsteps: Apologise for the shortcomings in a note to shareholders. The bank’s tagline is “We understand your world”.
