The HDFC Bank saga led to loss of shareholder wealth
| Photo Credit:
Dado Ruvic
After the abrupt resignation of Atanu Chakraborty, the former HDFC Bank non-executive chairman who was also an independent director, in March, the bank had set up an external review by two law firms. The former chairman had tendered his resignation quoting ‘incongruence between his personal values and bank practices’. This rather cryptic message had sent shock waves in banking circles as the contents of the resignation letter had hinted that all was not well within the bank.The law firms have finished their assignment and have come to the conclusion that there is nothing amiss in the functioning of the bank. They have apparently not found a single document with any irregularity.That being the case, one is at a loss to understand why the former chairman wrote what he did in his resignation letter. His refusal to discuss anything with the law firms has also not helped in the matter and in fact, led one to believe that he is at a loss to explain his actions. Chakraborty during several interviews has been asked pointedly to elaborate upon the aberration he found in the functioning of the bank (albeit in comparison to his code of ethics). But unfortunately, he was unable to throw any light.Chakraborty’s resignation letter, revealed on March 18, had a deleterious effect on HDFC Bank’s share value; about ₹1 lakh crore was wiped out in a day (March 19). The main shareholders of the bank are foreign institutional investors (FIIs), mutual funds and domestic institutions, retail investors and insurance companies.There has been a lot of speculation as to why the chairman quit. There have been some media reports that he had been unhappy with certain decisions taken by the bank but that didn’t mean the bank itself was guilty of any wrongdoing.On hindsight, it appears it had something to do with inter-personal equations with the top management. Chakraborty was the non-executive chairman and there is a difference in the role of a non-executive chairman vis-a-vis an executive one. Broadly, a non-executive chairman does not get involved in day-to-day operations but helps in formulating long-term strategy, ensures compliance with rules and regulations and protects shareholders’ interests are protected. No doubt, this distinction at times becomes wafer thin and can be a source of friction.Shareholders’ lossBut what one say when a bank chairman (that too of the top private sector bank) throws innuendos that the practices being followed are unethical but in the same breath, but states that nothing is wrong with the functioning of the bank. Nobody has the right to cause a capital loss by suggesting malpractice but not backing it up with evidence. It is a matter of regret that Chakraborty has not seemingly expressed any emphatic remorse over the fact that investors, including small investors, lost money.The time is ripe for SEBI to probe further, now that the law firms have given a clean chit to the bank. SEBI should seek an explanation from the former chairman in case it has not already done so. It would be difficult to punish the former chairman at this juncture since SEBI does not have any standalone regulation under which action can be taken for hurting investor confidence. There are regulations, including in the SEBI Act, under which action can be taken if investor confidence is harmed through some sort of illegal activity/trade, etc., which is not the case here.Having said that, SEBI also has the responsibility to ensure that such instances do not occur in future, where investors lose money just because some senior functionary chooses to shoot from the hip.The writer is Visiting professor, ICRIER and former Member (Economic & Commercial), CEA. Views are personalPublished on July 14, 2026
