Atanu Chakraborty Exit: HDFC Bank, RBI Move to Reassure Investors—Will It Be Enough?

India's largest private lender, HDFC Bank, is in damage control mode. After its part-time Chairman Atanu Chakraborty resigned late Wednesday, citing concerns over the bank's internal practices, the bank has been scrambling to reassure investors.

To contain the fallout, the bank was quick on all disclosures; it called an early analyst meeting, and at one point even the Reserve Bank of India stepped in.

Yet, despite all assurances, a critical question remains unanswered: why exactly did Chakraborty resign?

What Was in Chakraborty's Resignation Letter?

In his resignation letter, Chakraborty said that certain practices he had observed at the bank over the past two years did not align with his personal values and ethics. However, he stopped short of pointing to any specific incidents or issues.

"Certain happenings and practices within the bank that I have observed over the last two years are not in congruence with my personal values and ethics. This is the basis of my aforementioned decision. I confirm that there are no other material reasons for my resignation other than those stated above," Chakraborty said in his letter.

What made the exit even more surprising, as per observers, was its timing. He was serving an extended term at the bank, which was supposed to end on May 4, 2027. Former Secretary for the Department of Economic Affairs (DEA), Chakraborty was first appointed as part-time chairman in April 2021 for a three-year term and was reappointed in May 2024.

"Mr. Chakraborty, instead of writing those one or two lines in his resignation letter, should have substantiated his allegations. Moreover, if he wanted to resign, he could have left when his term ended," said Shriram Subramanian, Founder and MD of proxy advisory firm InGovern Research Services.

Further, the lender is also coming out of a massive merger two years ago, which made it one of India's largest financial institutions.

"HDFC Bank is still digesting one of India’s most consequential financial sector mergers, and governance coherence is critical in such transitions. Any suggestion, however vague, of misalignment at the board level will invite closer regulatory and market scrutiny," noted Ravi Varanasi, Founding Partner at SPRV Consultants and former Group President at NSE, in a LinkedIn post on early Wednesday.

Investors Scramble to Digest

The late-night disclosure by the bank led to a massive sell-off in HDFC Bank's stock in early morning trade. The scrip nosedived nearly 9% in early trading session. This was even after the bank had tried to assure investors by appointing Keki Mistry, a veteran HDFC banker, as the interim part-time Chairman. His appointment was cleared by RBI, but just for three months.

The early sell-off was somewhat contained intraday, as HDFC Bank stock recovered to trade with about a 5% cut from Wednesday's closing level of ₹843. But still, it wiped out about ₹1 lakh crore in market value of the bank.

At its worst point, the bank's market capitalisation dropped to a little over ₹11.85 lakh crore.

Notably, the bank's stock fell sharper than its peers, suggesting that investors were reacting specifically to the chairman's exit, over and above a broader market dip already underway due to rising tensions in West Asia. Additionally, the American Depository Receipts (ADRs) of HDFC Bank also closed trading 7.5% lower.

HDFC Bank and RBI's Assurances

This comes even as HDFC Bank's management called an early morning analyst call to reassure investors that there is no "material" impact on the bank and that Chakraborty's comments pointed to "no specific practices".

"We wish to assure all shareholders that there are no material matters for the resignation," Mistry told analysts, adding that the bank operates with strong governance standards and that no operational issues had been highlighted.

"Based on our discussions, there were no specific practices or happenings that were brought to our attention," he further said.

Mistry also noted that "when we asked Chakraborty for instances of lack of governance, he said nothing, and hence, we used the word 'baffled' to describe how we viewed the resignation letter."

"We do not understand what led to the reaction from the chairman yesterday. It may have been a routine issue, which is no different from the issues that happen in any other bank," Mistry said.

Mistry said governance of the bank is "top class" and the reputation impact is being taken care of. "The management will be speaking to all the major shareholders in the next few days. As far as the reputation damage is concerned, people will understand that there is nothing serious or wrong in any manner once RBI gets roped in," he said.

The RBI, too, wasted little time. The apex bank came out with a detailed note saying, "Based on our periodical assessment, there are no material concerns on record as regards its conduct or governance. The bank remains well-capitalised, and the financial position of the bank remains satisfactory with sufficient liquidity. Reserve Bank will continue to engage with the Board and management on the way forward."

Later, speaking to NDTV Profit, Chakraborty attempted to soften his stance, saying he was not pointing out any wrongdoing at the bank. "My ideologies did not match with the organisation, and hence it was time to part ways," he said.

Some experts draw comfort from what the RBI has said. Amit Tandon, Founder and MD of proxy advisory firm Institutional Investor Advisory Services India Limited (IiAS), who said that, "I can take assurance from what the RBI has said about HDFC Bank, since it has always been at the forefront on every occasion."

But, not everyone is onboard. Subramanian said, "There has to be more accountability, and I would say that by making certain allegations, Atanu Chakraborty has done more harm than good to the investors. He should have explained in much more detail."

"The current governance questions matter. When concerns arise around a bank of HDFC’s stature, they affect the entire ecosystem, regulators, boards, and investors," said, Rajiv Gupta, Author of Lala Company & Chairperson, School of Family Business at Masters’ Union.

What's Next for HDFC?

On what the bank should do next, Subramanian was equally firm. "The conference call will not suffice. The board should constitute a committee of independent directors to look into the matter and put out a detailed statement to assuage investor concerns," he said.

SPRV Consultants founding partner, Varanasi, said that the "absence of detail keeps the resignation in the realm of speculation." "But the language used suggests this is not a routine exit, and markets will be watching closely for what surfaces next," he added.

"The only clear signal so far is his reference to 'certain practices' not aligning with his personal 'values and ethics.' That is unusually strong language for a systemically important bank and from a former Economic Affairs Secretary who would be deeply familiar with governance standards," Varanasi wrote in his post. He put it plainly and said that, at one level, the resignation could still turn out to be a contained internal disagreement.

For now, the bank's near-term task would be to find Chakraborty's successor within the 90 days given for interim part-time chairman Mistry.

Tandon noted that the lender will have to find someone independent from the institution to fill Chakraborty's role.