Clear the fog over HDFC Bank

Lack of transparency around goings on in largest private lender is worrying

Alok Tiwari

Lost in the recent market mayhem caused by the US-Israel attack on Iran was an event that was enough to cause a cataclysm by itself. It was the cryptic resignation of Atanu Chakraborty, the non-executive chairman of country’s largest private sector lender HDFC Bank. His exit caught everybody by surprise. But what caused the country’s financial tectonic plates to start sliding was the reason he gave for it. Chakraborty wrote in his resignation letter that there were things happening at HDFC Bank that were at variance with his personal values.

He did not give any details. Not to the public, not to regulators like RBI or SEBI, not even to his own board. The board seemed just as perplexed as the customers. What further muddied the water was exit of three senior executives over what was called misselling of Credit Suisse AT-I bonds in Dubai a few years ago. Financial commenters are coming up with several other issues that might have caused Chakraborty to say goodbye. But all that is conjecture.

The investors were understandably spooked. HDFC Bank stock tanked over 15%. The shares of other banks, private as well as public, also fell owing to global selloff among geopolitical troubles and consistent withdrawal from Indian markets by foreign investors. But none so badly as HDFC Bank. Thankfully, the panic among investors has not been transferred to customers, at least not yet. If that were to happen, it would have had repercussions far beyond the Bank itself. That is because HDFC Bank is no ordinary bank.

It is a colossus in Indian financial sector. It may not seem very big globally but within the country it is among a handful of financial institutions that are too big to fail. And it is not just the size. Over the years the bank has built for itself a reputation of doing everything by the book. The ethos has been painstakingly built over three decades by titans like Deepak Parekh and CEO Aditya Puri.

The bank was having a difficult time dealing with pangs of the merger with its parent company HDFC Ltd since last couple of years. But never had there been even a hint of any wrongdoing. There had been trouble at other big private sector banks, notably the ICICI Bank and Yes Bank. While the former had to get rid of its celebrated MD Chanda Kochar, the latter suffered RBI restrictions over dubious loans given by its founder. Even public sector banks have frequently come under scrutiny over suspicious lending that created non-performing asset (NPA) crises leading to large government bailouts.

Hence, governance issues casting their long shadow on HDFC Bank was disconcerting. Not the least because of lack of transparency that appears to be accompanying the whole process. It has been several days since Chakraborty’s bombshell, but nothing is forthcoming from either the bank management or the regulator. One can understand that everybody is circumspect so as not to cause panic, but the silence is now causing suspicion. The first principle of crisis communication is giving out correct and credible information.

What exactly are the issues that Chakraborty was uncomfortable with? How long they have been going on? Are they big enough to affect the health of the bank? Did he ever raise them with senior management and if so, how were they dealt with? Was the RBI made aware of them and was any action taken to rectify them? These are important questions and one that customers of the bank deserve to know the answers of. Clearly, they are big enough that the chairman of the bank, no less, could no longer live with. The bank has now invited an outside and independent inquiry, but the bank customers, both depositors and debtors, remain in the dark.

Mishandling is writ large on the episode. It was irresponsible, to put it mildly, of Chakraborty to exit in the manner that he did. If the issues that troubled his conscience are relatively minor, there was always option of privately alerting the management even as he made his exit. If they are big enough then a public explanation is owed including whether the regulator was told of them well in time. He has a fiduciary responsibility of protecting the depositors’ money in the bank. To insinuate wrongdoing and but not give out details is unacceptable, especially from chief of a bank.

It is now for others in the bank to make it right as quickly as they can. Also, sooner rather than later, the RBI too will have to clear the air about how much it knew and since when. The rectification process also needs to be transparent and time bound. We have repeatedly seen that as far as banking is concerned, the biggest stakeholders, the customers of the bank, are last to be told about things going wrong. In fact, they become aware of it only when the RBI announces restrictions on withdrawals. This has happened in case of small banks as well as not-so-small ones.

Most customers are ordinary people who can least afford to be denied access to their own money even for short periods. They suffer the biggest hardships. Their day-to-day life is disrupted. They cannot pay medical bills or even buy groceries. When people put their money in a bank, they do so with an assurance that bank management and regulators will keep it safe. It is like boarding a flight. We assume everyone from the plane maker to maintenance people to pilots to air traffic controllers to regulators will follow rules and do their job well. If even one of them slips up it can result in tragic loss of lives. When that happens in banks, it often results in loss of life’s saving for many people. We need assurance from all concerned that HDFC Bank is flying safe.

This column appeared in Lokmat Times on Mar 26, 2026