HDFC Bank, the country's largest private sector lender, is rushing to find a replacement for its MD and CEO, Sashidhar Jagdishan, who decided not to stand for re-appointment less than two months before the end of his second term.
Jagdishan, aged 61, first took this position in October 2020, succeeding Aditya Puri, and was subsequently reappointed in 2023. His current term concludes on October 26 of this year.
The process of selecting a CEO in Indian banks usually takes a long time as it requires regulator approval. There have been instances where the regulator rejected candidates recommended by the bank, forcing the bank to review the process.
The bank's board of directors is required to present at least two candidates to the Reserve Bank of India (RBI) for approval. There have been cases where the regulator insisted on including at least one candidate who is not an employee of the bank.
Initially, the bank's four-member Committee on Governance, Nomination, and Remuneration, chaired by Harsh Kumar Bhanwala, former chairman of Nabard, must hold a meeting and determine the strategy for selecting a new CEO. According to a source, 'they first need to shortlist 7-8 candidates, including external candidates.' He added that since HDFC Bank is a large bank, the regulator can always provide certain concessions.
Banks usually engage search firms to compile a list of potential candidates. According to the RBI, HDFC Bank, along with State Bank of India and ICICI Bank, is a systemically important bank and falls under higher capital requirements.
Sources report that Jagdishan might be asked to stay slightly longer than October 26 to give the bank more time to find a new leader. The exchange notification, where the bank stated that Jagdishan would not seek an extension, also mentioned that he would leave the post 'at the close of business on October 26, 2026.'
Besides Jagdishan, there are two other executive directors on the board: Deputy Managing Director Kaizad Bharucha (60 years old) and Executive Director V Srinivasa Rangan (66 years old). Bharucha, who joined the board in 2014, is the longest-serving member of HDFC Bank's executive council. According to RBI norms, an executive director can serve on the bank's board for no more than 15 years.
A source noted that 'Bharucha can still serve as CEO for at least one term, as he still has two and a half years remaining as a board member.' Typically, the RBI approves a three-year term or extension for a bank's CEO appointment.
A series of issues, starting with the sudden resignation of then non-executive chairman Atanu Chakraborty in March, which raised governance questions at the bank, may have led to Jagdishan's decision to decline the extension. Chakraborty claimed that some 'events and practices' within the bank did not align with his values and ethics. However, a subsequent legal review initiated by the bank found no grounds for accusing Chakraborty.
In September last year, the Dubai Financial Services Authority prohibited the HDFC Bank branch in the Dubai International Financial Centre from onboarding new clients due to improper sale of AT1 bonds to investors.
Since March, HDFC Bank shares have shown lower performance compared to broader indices.
Another issue arose when an internal investigation conducted by the bank revealed that approximately 45 crore rupees were paid to the state-owned Maharashtra State Road Development Corporation (MSRDC) through marketing expenses classified as 'differential interest'. Following this, HDFC Bank issued warning letters and imposed a monetary fine of 100,000 rupees on each of its three senior employees, including Sashidhar Jagdishan, MD and CEO; Srinivasan Vaidyanathan, CFO; and Arvind Vohra, Head of Retail Assets Group. This decision was made after a special disciplinary committee of independent directors completed an internal review concerning the bank's deal with Maharashtra State Road Development Corporation (MSRDC) for attracting deposits in 2017 and 2021.
Last week, HDFC Bank shares came under pressure after an investor filed a class-action lawsuit alleging securities fraud against the lender in the US regarding the MSRDC matter.