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The Story
Last week, HDFC Bank’s chairman Atanu Chakraborty resigned unexpectedly. What caught attention wasn’t just his departure but his pointed remarks about “certain happenings and practices” within the bank that, over the past two years, clashed with his personal values and ethics.
His brief resignation letter was carefully worded but sparked more questions than answers. Notably, there was no sensational scandal or headline-grabbing revelation. Yet, his departure caused a sharp decline in the bank’s stock and shook investor confidence.
This raises the question: what could have triggered such a high-profile exit from one of India’s most respected private banks?
Typically, a chairman leaving over “values and ethics” is unusual, especially for a bank that has long been seen as disciplined and reliable. Such a departure hints at underlying issues that remain hidden but are significant enough to cause internal upheaval.
Possible Triggers
One potential factor is a regulatory action by the Dubai Financial Services Authority (DFSA), which had largely flown under the radar until now. Within days of Chakraborty’s resignation, three senior executives at HDFC Bank’s UAE operations were dismissed following an internal investigation. They were accused of mis-selling Additional Tier-1 (AT-1) bonds at the bank’s Dubai branches.
To clarify, AT-1 bonds are risky debt instruments issued by banks to bolster their core capital. They offer higher interest but come with significant risks, including the possibility of principal loss if the issuing bank’s financial health deteriorates. In this case, bonds issued by Credit Suisse, involving these AT-1 instruments, were wiped out in 2023 after the bank’s collapse, leaving investors with nothing.
The Dubai authorities had also barred HDFC Bank from onboarding new customers at its DIFC branch, though this was not publicly disclosed until recent investigations surfaced. Internal reports suggest that between 2019 and 2022, bank officials convinced non-resident Indian customers to shift foreign currency deposits into Bahrain, falsely portraying high-risk AT-1 bonds as safe, fixed-maturity products.
Other Controversies
Another possible factor could be allegations related to Mumbai’s Lilavati Hospital. Last year, the Mehta family, which controls the hospital, filed FIRs against HDFC Bank’s MD and CEO Sashidhar Jagdishan and current and former employees. The accusations involve misappropriation of funds, bribery, and improper handling of Trust assets, including claims that Jagdishan received ₹2 crore as part of illicit transactions.
HDFC Bank has denied these allegations, asserting they are attempts by the Trust to distract from a long-standing debt dispute involving over ₹65 crore with Splendour Gems Limited.
Management Disagreements?
Adding another layer, a report suggests Chakraborty had disagreements over key decisions, including the reappointment of Jagdishan as MD & CEO without a thorough performance review, and the proposed appointment of Jimmy Tata as an executive director. Chakraborty reportedly believed tenure alone should not guarantee a board seat.
These internal frictions may have built up, eventually leading to his resignation, though there’s no official confirmation linking these issues directly.
The Official Response
Despite the speculation, official statements have been reassuring. Interim chairman Keki Mistry stated Chakraborty did not share specific concerns with the board. The Reserve Bank of India described HDFC Bank as a “sound financial institution,” and the Finance Ministry called it a “strong institution with solid fundamentals.”
However, investor nerves remain. Many believe the bank should have conducted a transparent, independent inquiry or provided a clearer public explanation of the issues.
What’s Next?
For now, the full story remains incomplete. The coming days will reveal whether further investigations confirm any underlying issues or if this was an internal leadership disagreement. As always, the true picture will emerge with time and scrutiny.
