CEO succession remains unresolved at HDFC Bank as review continues

HDFC Bank's CEO succession process remains unresolved as the lender awaits the outcome of an additional review being conducted by its independent directors before deciding whether to recommend the reappointment of Chief Executive Officer and Managing Director Sashidhar Jagdishan to the Reserve Bank of India (RBI).

The additional review has delayed the board's recommendation even as Jagdishan's current term is due to end in October. During the bank's post-earnings conference call, management described the CEO succession process as "a work in progress".

Independent directors complete additional review

According to three sources familiar with the matter cited by Reuters, the delay is linked to an additional review commissioned by the bank's independent directors.

The review is examining media reports published in May alleging HDFC Bank had offered preferential rates on certain large deposits, a practice not permitted under RBI rules.

Reuters reported the review has not indicated any wrongdoing so far, citing two of the three sources.

One source told Reuters the board committee will decide whether to recommend Jagdishan's reappointment after receiving the findings from the independent directors. Another source said the review is expected to conclude during the first week of August.

Board yet to submit recommendation

The bank's board has not yet approved its recommendation for Jagdishan's reappointment.

Under RBI regulations, the board of a private sector bank must either seek approval for the reappointment of its chief executive or submit fresh candidates six months before the CEO's term expires.

According to Reuters, an HDFC Bank spokesperson did not immediately respond to requests for comment on the additional review. Jagdishan also did not comment.

Leadership scrutiny follows former chairman's exit

The succession process has remained under investor scrutiny since former chairman Atanu Chakraborty resigned in March, stating that certain practices at the bank were not consistent with his personal ethics.

Reuters reported an external legal review completed last month found no evidence to substantiate the governance concerns raised by Chakraborty.

In March, the Reserve Bank of India also issued a rare public statement, saying its periodic assessments had found "no material concerns on record as regards its conduct or governance."

Separately, when media reports surfaced in May regarding preferential deposit rates, an HDFC Bank spokesperson told Reuters the bank maintained robust internal oversight, audit and control processes and systems.

Investors await clarity on leadership

Management continuity has become a key focus for investors. According to Reuters:

• HDFC Bank shares have fallen 7.4% since 18 March, when Chakraborty resigned.
• During the same period, the Nifty Bank index gained 4.6%.
• HDFC Bank remains the largest constituent of both the Nifty 50 and Sensex indices.

Nuvama Institutional Equities said in a note on Monday, as quoted by Reuters, that the bank's re-rating depends on resolving the uncertainty surrounding its top management.

The outcome of the independent directors' review is expected to shape the next stage of HDFC Bank's leadership transition. With the findings likely in early August and Jagdishan's current term ending in October, the board's recommendation to the RBI will be closely watched by investors and the broader banking industry.