Shortly before midnight on the eve of a bank holiday in India, HDFC Bank Ltd., a favorite among global investors, stunned the market by announcing the abrupt exit of its chairman. One line in the statement jumped out: Atanu Chakraborty resigned over “ethical” differences with the bank going back two years.
Left unsaid was what exactly Chakraborty meant.
That’s now becoming clearer, four days after the boardroom fight burst into the open and wiped out nearly a tenth of HDFC Bank’s market value, or about $11.5 billion.
People familiar with the matter say the rift came down to differing views over accountability, particularly over client losses tied to risky bonds sold by Credit Suisse and recent restrictions imposed on HDFC Bank in Dubai. In Chakraborty’s view, more senior bank officials should have been held responsible for the missteps. He also grew frustrated over the bank’s lackluster performance relative to peers, including its share price and profitability.
Chakraborty didn’t respond to a query from Bloomberg News. HDFC Bank said in a statement it has well established governance frameworks, “and continues to remain committed to maintaining high standards of compliance and regulatory adherence.”
The chain of events leading to the departure of Chakraborty late on Wednesday started behind the scenes a few days earlier.
Chakraborty, 65, had called a board meeting on short notice for March 18, offering few details of the agenda. Directors assembled on the sixth floor of the corporate offices in South Mumbai, the erstwhile headquarters of its parent. The nomination and remuneration committee convened first. It was there that Chakraborty, a former senior bureaucrat in the administration of Prime Minister Narendra Modi, submitted his resignation as part-time chair, before informing the board.
What followed was a tense exchange, as directors tried to persuade him to reconsider. When that failed, they urged him to soften the language in his resignation letter, which would later stun investors with its bluntness: “Certain happenings and practices within the bank that I have observed over last two years are not in congruence with my personal values and ethics,” he wrote.
Despite the board’s pleas, Chakraborty refused to budge on the wording, nor explain what he meant by ethical differences.
By late Wednesday, the lender had little choice but to move ahead. Chief Executive Officer Sashidhar Jagdishan and a few other board members met with the Reserve Bank of India — the country’s central bank and banking regulator — to inform them of Chakraborty’s decision. Within a few hours, Keki Mistry, a bank director and a doyen of India’s financial sector, was officially named interim chairman. Around 10:30 p.m., the disclosure hit the exchanges.
By the time markets opened the next morning, uncertainty snowballed into fear about governance at the lender. Retail investors flooded brokers with calls. Fund managers sought clarity on a testy conference call. Social media amplified speculation about a bank widely held by foreign institutional investors and often treated as a proxy for India’s economic success story.
“If you care about your company, if you care about the time you spent there, if you care about other stakeholders and shareholders - u do not resign with immediate effect in the middle of a week,” veteran fund manager and investor Samir Arora wrote in an X-post.
Other reactions were more nuanced, as some said the chairman wouldn’t have quit unless there was something seriously wrong. Chakraborty tried to walk back his comments a few hours later, telling a local television channel that his resignation was “routine,” and not indicative of any wrongdoing at the bank.
The market reaction prompted the RBI to defend the lender, saying there were no concerns about its conduct or governance. Such interventions by the central bank are typically reserved for cases of systemic stress. One 51-year old investor, Joydeep Shome, asked his broker if HDFC Bank’s stock was “buy at dips, or bye for all?”
By Thursday morning, the bank’s leadership went into overdrive. On the hastily arranged call with analysts and journalists, Mistry sought to draw a line under the speculation. He said that in large organizations, relationship issues among employees are common, and that there were no governance issues at the firm. Jagdishan, typically media shy, also stepped forward on the call in a bid to assuage investors. The board closed ranks.
Yet as the call stretched on, one question refused to go away: what exactly had driven the chairman to walk out so abruptly if, as the board claimed, there were no governance concerns or hidden financial stress?
At the heart of the rupture, according to people familiar with the internal discussions, was a long-simmering disagreement over accountability that came to a head over client losses tied to Credit Suisse debt. Global bondholders were wiped out when Switzerland’s regulator wrote down about $17 billion of the so-called Additional Tier 1 notes during the bank’s rescue by UBS Group AG in March 2023.
HDFC Bank, along with several other global firms, was caught up in the fallout and faced allegations of misselling. Some of its customers claimed they were not properly informed about the high-risk nature of the bonds, though the lender has maintained it complied with all applicable laws.
While the Credit Suisse matter led to sanctions against some executives, Chakraborty pushed for broader accountability, arguing that more senior officials should be held responsible and made to come clean, the people said. The senior management didn’t agree, creating an impasse.
HDFC Bank was also barred from adding new customers last year at its Dubai branch after the Dubai International Financial Centre flagged lapses in its processes.
In its response to Bloomberg News, the bank said it identified certain gaps in client‑onboarding requirements in Dubai and have completed a detailed and objective review of the matter. Appropriate remedial actions have been taken and personnel changes have been made.
The Economic Times daily quoted CEO Jagdishan as saying in an interview on Monday that the bank initiated an internal review and “took staff accountability actions through our disciplinary and board-level committees, with a right to appeal.”
The Credit Suisse bond and Dubai episodes weren’t the only sources of friction.
Chakraborty grew dismayed over the bank’s lagging performance, including its profitability, customer service and technology systems. Over the last three years, HDFC Bank shares have barely budged, while rivals including State Bank of India and ICICI Bank Ltd. have soared, as has the benchmark index.
Over time, Chakraborty had developed a reputation for seeking more oversight of the bank. Some executives viewed it as micromanagement, ranging beyond what most non-executive, part-time chairmen typically do. He was said to be closely involved in decisions like extending tenures of senior employees, for example. Chakraborty grew frustrated with what he perceived as resistance to tighter oversight, particularly on issues involving whistle-blower complaints.
This clashed with a management team shaped by a different legacy.
Under Aditya Puri, the bank’s long-time former CEO, operational autonomy for executives had been a defining feature. Jagdishan, his successor, largely continued that approach. The result was a growing trust deficit between Chakraborty and management. At some point, the relationship broke down.
For a bank already grappling with balance sheet challenges following its 2023 merger with a mortgage lender, the timing could hardly be worse. There’s also the possibility, still under discussion, of an independent review into the issues raised by Chakraborty, though the lack of specifics in his resignation letter complicates things. Regulators, too, are expected to keep a close watch.
The bank also has a looming decision on CEO succession, which will be discussed next month, Mistry said. Jagdishan’s term runs until October, and he is eligible for reappointment. Under normal circumstances, his continuation might have attracted little debate. Now, it has become a focal point.
The path forward for the bank will require more than just restoring calm, analysts said. It will involve reaffirming the balance between board oversight and executive authority, particularly as the institution grows larger and more complex, they said.
