Shock resignation of HDFC Bank chief Atanu Chakraborty baffles global investors

Hours after the startling resignation of HDFC Bank Ltd’s chairman, executives at India’s largest private lender hastily arranged a call to assure investors that all was well.

Though the stock had tumbled the most in almost two years, management insisted there was nothing material in Atanu Chakraborty’s abrupt departure over “ethics.”

Investors weren’t buying it. Less than half an hour into the call, without any clear explanations, Prashant Periwal of BlackRock Asset Management let loose.

“So far, whatever I heard on this call doesn’t make me any wiser than I was an hour ago,” said Periwal. “Look, if it is too early and you guys have no idea why it was happening, how can you say there’s nothing behind it?” he soon added.

So it went for HDFC Bank, which spent Thursday trying to explain why Chakraborty, a former senior bureaucrat in Prime Minister Narendra Modi’s administration, left after almost five years as part-time chairman of the Mumbai-based lender.

His resignation letter was a stunner: “Certain happenings and practices within the bank, that I have observed over last two years, are not in congruence with my personal values and ethics,” he wrote.

Chakraborty, 65, tried to walk back his comments a few hours later, telling a local television channel that his resignation was “routine”, and not indicative of any wrongdoing at the bank.

Yet the damage was done. HDFC Bank’s shares tumbled more than 5% on Thursday, the biggest single-day drop since June 2024, when markets slumped following national elections. The plunge wiped out more than $7 billion in market value and weighed on India’s key banking sector index.

The decline continued during early trading on Friday. HDFC Bank’s stock fell as much as 2.3%, defying a recovery in the bank index.

Analysts and fund managers listened in disbelief as board members struggled to explain what had happened. There were no specific operational or other issues that needed to be highlighted, they said. The board’s oversight mechanism was as robust as ever. Moreover, the banking regulator had promptly approved the appointment of a new chairman for three months to stabilise the ship.

That wasn’t flying with investors and analysts at BlackRock, Principal Asset Management and other firms that joined the call. Foreign institutional investors hold about 48% of HDFC Bank shares — and they wanted answers.

“What exactly was it?” asked Periwal at BlackRock, which owns more than 3% of HDFC Bank, according to Bloomberg-compiled data. “Because he was the chairman of the bank. He was not like any other employee that resigns saying something and it means nothing.”

It’s unusual for a bank chairman to resign in such a manner, he pointed out, asking management to describe the sequence of events following Chakraborty’s communication to the board. This led to a back and forth with Periwal seeking details and the board claiming bewilderment.

“What caused that letter to be sent yesterday is something which, really to my mind, defies logic,” said Keki Mistry, a bank director who was appointed interim chairman on Thursday with the blessing of India’s banking regulator. He was on holiday in New Delhi with his wife, when he got the call to assume the new role.

At one point, Periwal pressed for details — what exactly happened after Chakraborty tendered his resignation: Did the board simply accept it without asking questions?

Two board members stepped in to say Chakraborty had offered no specifics.

“All of us had asked him what are the reasons behind this and he said, ‘I personally have no issues. It could be my value systems, etc., which are different’,” said director Harsh Bhanwala. “But he didn’t say anything on regulatory aspects of the bank. It was all sound. He agreed with us.”

Renu Karnad, a director at the bank, added that the board had repeatedly asked what had triggered the resignation and Chakraborty had said nothing, “and that was a bit baffling”.

Other analysts expressed disbelief over the Board’s lack of specifics. Principal Asset Management equity research analyst Siva Natarajan said that Chakraborty had used “very, very strong words.”

“All I’m hearing is there was nothing specific; just seems very difficult to believe,” he said.

Scathing move

Prashant Poddar, a portfolio manager from Abu Dhabi Investment Authority, said the banking business is one of reputation — and this was a “reputation maligning” kind of letter.

“If someone has to insinuate towards something, there should be an explanation in the letter, or else this is scathing,” Poddar said. “Rather than sending regards, the bank should ask RBI to investigate,” he added.

Earlier in the call, CEO Sashidhar Jagdishan and Mistry denied there was infighting on the board or within the broader management group. Mistry, who was CEO of HDFC Ltd, until it merged with HDFC Bank in 2023, said he would not have “taken on this responsibility at the age of 71, if it did not align with my principles and the level of integrity that I would expect from the bank.”

“Human beings are human beings, there will always be some relationship issue between individuals. Those kinds of things happen,” Mistry said. He was answering a question from Macquarie Group Ltd. analyst Suresh Ganapathy over possible differences on the Board. There was “no power struggle,” which led to Chakraborty’s exit, Mistry added.

Ganapathy excluded HDFC Bank shares from the brokerage’s marquee buy list, citing expected near-term underperformance due to governance concerns.

In a rare move, the RBI defended HDFC Bank, describing it as a systemically important lender “with sound financials, professionally run board and competent management team.” The regulator said that based on a periodic assessment, “there are no material concerns on record as regards its conduct or governance.”