HDFC CEO departure opens door to needed overhaul
RPT-BREAKINGVIEWS-HDFC CEO departure opens door to needed overhaul The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Shritama Bose
MUMBAI, Aug 31 (Reuters Breakingviews) - India's largest private bank by assets has a chance to restore some lost credibility. HDFC Bank HDBK.NS CEO Sashidhar Jagdishan on Saturday unexpectedly ruled out staying for a third three-year term at the helm once his current tenure ends in October. As the $115 billion lender's governance woes start to look persistent, his departure gives its board a chance to bring in an outsider to shake things up.
HDFC has been in the wars of late. In March, Chair Atanu Chakraborty suddenly resigned, citing ethical differences with the bank. Last month, the board fined Jagdishan and other senior executives for "business overreach" in deposit pricing; within three weeks a group of U.S.-based investors filed a class-action lawsuit against the lender, alleging it failed to properly disclose information about the incident.
These challenges had weakened Jagdishan's chances of staying on, as it was not clear he'd get the nod from the central bank, which has an effective veto over bank CEO appointments. They certainly overshadowed his achievements. A long-time insider, 61-year-old Jagdishan prioritised improvements to HDFC's technology and customer service; oversaw the merger of HDFC Bank with its mortgage-lender parent, which involved layers of employee integration and a complex realignment of assets and liabilities; and he upgraded the bank's digital capabilities enough to reverse crippling business curbs imposed by the central bank months after he took charge.
Yet internal problems and thinning net interest margins have taken their toll: the stock has fallen 27% from its high at the end of last year, reducing the bank's annualised total return during Jagdishan's tenure to just 4.5%, a quarter of the Nifty Bank index.
After more than 30 years of insiders running the shop, hiring the next CEO from outside the lender's executive ranks makes sense. Amitabh Chaudhry, who leads $41 billion Axis Bank AXBK.NS and has presided over an asset-quality turnaround and an acquisition of Citi's local consumer business, would be a strong contender. As would Bajaj Finance BJFN.NS Vice Chair Rajeev Jain, whose experience building scale would suit HDFC's needs, too.
The bank might suggest Deputy Managing Director Kaizad Bharucha and an external candidate for the central bank to consider, Reuters reported, citing sources. Between the two choices, the lender stands to gain less from the continuity an insider would bring than from the needed shake-up an external appointment might be more willing to instigate.
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CONTEXT NEWS
HDFC Bank is likely to name Deputy Managing Director Kaizad Bharucha as one of two options for its next CEO after incumbent Sashidhar Jagdishan retires at the end of his second term in October, Reuters reported on August 30, citing two unnamed people familiar with the matter.
The bank on August 29 said Jagdishan had decided not to seek re-appointment to the role. His second three-year term ends on October 26. "The Board decided to fast-track the process for selection and appointment of his successor well within time," HDFC said in a filing.
(Editing by Antony Currie; Production by Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on BOSE/shritama.bose@thomsonreuters.com))