HDFC Bank CEO search tests governance & investor confidence

HDFC Bank Ltd.’s search for a new chief executive after Sashidhar Jagdishan’s surprise decision to step aside will test whether India’s largest private-sector lender can restore investor confidence and move past lingering governance concerns.

The announcement on Saturday that Jagdishan — a three-decade HDFC Bank veteran — won’t seek reappointment puts to rest months of speculation that he was eyeing an extension. His final day is Oct. 26. The board has to seek approval from the regulator to appoint a CEO who can be an internal or external candidate.

Jagdishan’s decision comes as the lender confronts a slew of issues that have placed its governance practices under intense scrutiny recently. HDFC Bank’s part-time chairman made an acrimonious exit earlier this year, and the lender had been grappling with the historic fallout from Credit Suisse’s Additional Tier‑1 bonds.


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Jagdishan took charge in 2020 when he succeeded Aditya Puri, who was at the helm for more than 20 years. He oversaw HDFC Bank’s balance-sheet expansion and its merger with the country’s largest mortgage financier in 2023.

“We believe that Jagdishan not seeking a reappointment removes the tail risk of him getting a truncated tenure by the RBI, which would have just prolonged the uncertainty and would have continued to weigh on the stock price,” said Rikin Shah, senior vice president at IIFL Capital. A credible external candidate could provide a leadership reset and a longer runway to steer the bank, he said.

While HDFC Bank is India’s most valuable lender, with a market capitalization of about $116 billion, its shares have underperformed the broader banking index and some of its biggest peers. They have fallen 27% this year, against a 3.5% decline in the Nifty Bank Index, marking their worst relative under-performance since 2003.

Last year, the bank was barred from on-boarding new customers at its Dubai branch after a local regulator flagged process lapses. In March, Chairman Atanu Chakraborty abruptly resigned, citing ethical differences. He later told Bloomberg News that concerns over how the bank handled the Dubai regulatory issues contributed to his departure.

HDFC Bank has denied any wrongdoing, while the Reserve Bank of India — the regulator— has publicly said there are no governance issues at the lender.

The scrutiny intensified after a media report alleged the bank had breached industry norms by effectively paying higher interest to a state-owned company and camouflaged it as marketing expenses. In July, the bank’s board penalized three top executives including Jagdishan after saying employees involved in setting deposit rates had engaged in “business overreach.”

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The lender also faces a potential US shareholder lawsuit and allegations of mis-selling from investors, which the bank said it intends to “vigorously” defend.

Clarity Crucial

Last week, analysts at Macquarie Group Ltd. wrote that uncertainty around Jagdishan’s term was weighing on HDFC Bank’s stock. Vanguard Group Inc. and Blackrock Inc. are among investors who hold the lender’s shares.

Hiring a new CEO quickly is crucial as the lender seeks to move past uncertainty that deepened after Chakraborty’s exit. The new CEO will have to assure investors that the bank’s governance systems are robust, with the focus squarely on growing the business at a time when peers are eager to gain ground.

HDFC Bank has also struggled since it merged with Housing Development Finance Corp. in 2023. The deal saddled the combined entity with a large pool of long-tenor home loans, which has weighed on its liquidity and margins.

The bank has a nearly 10% weighting in the Nifty 50, making it the country’s most influential stock. But that meant its slump has had a significant drag on the broader market. The Nifty 50 has fallen 7.5%, compared with a 22% gain in the MSCI Asia Pacific Index.

“The market will closely watch who takes charge, how smoothly the transition happens and whether the new leadership can maintain the bank’s growth trajectory and governance standards,” said Ponmudi R, chief executive at local brokerage Enrich Money.