On Monday, ending weeks of speculation, the HDFC Bank board approved the appointment of Kumar as the next part-time Chairman. The post has been lying vacant since the sudden resignation of Atanu Chakraborty in March.

HDFC Bank has been in the news for a few months now, and not for the right reasons. It started with the sudden resignation of its then part-time Chairman Chakraborty. He quit saying that certain practices in the bank were not in “congruence” with his “personal values and ethics”.

On June 26, however, a review of the matter conducted by external legal firms, Wilson Sonsini Goodrich & Rosati, P.C. and Wadia Ghandy & Co, which was made public, said there was no evidence to support the concerns raised by the former chairman.

Though bourses have reacted favourably, with the HDFC Bank share price going up almost on an immediate basis, key questions on corporate governance and ethics remain, analysts said.

“Whether or not the legal report gives a clean chit to the Chakraborty episode, the fact is that there have been major lapses and governance breach, and this must be taken into account to rejig the internal system to ensure that they do not recur,” Amarjit Chopra, Chartered Accountant and former President, Institute of Chartered Accountants of India (ICAI), told The Secretariat.  

HDFC Bank Controversies

Recently, the bank was caught in a massive ₹45 crore controversy. According to reports, the bank assured a much higher return to the Maharashtra State Road Development Corporation (MSRDC) on a large deposit. Since Reserve Bank of India (RBI) regulations restrict lenders from negotiating interest rate payouts, the additional payouts were allegedly camouflaged as marketing spends.  

Before this, the bank sacked three of its senior management members after they were found to be involved in mis-selling Credit Suisse’s additional tier 1 bonds to non-resident Indians in Dubai. Following this, the Dubai Financial Services Authority took strict action against the bank in September last year, restricting it from acquiring new clients. While initially it was dismissed as a technical lapse, it was a serious breach of regulatory parameters.

According to reports, the legal report that gives a clean chit to the bank would allow the reappointment of CEO Sashidhar Jagdishan for the third term. His three-year term will expire in October.

The move, however, is to be cleared by the RBI.

What Does The Legal Report Say

"Having now completed an extensive legal review, External Law Firms found that Mr. Chakraborty's statement and its implications were not substantiated by the record and witness interviews," the report published in the stock exchanges said. The report also said that despite repeated requests, Chakraborty refused to speak with them.

Speaking to The Secretariat, Chakraborty clarified that he had sent several requests and reminders to the firms to see and understand the terms of reference (ToR).

“I was ready for the investigation, and I did ask them to send me the ToR—at least six times -- but that did not happen. So, the terms of reference of the entire investigation are not even known,” he said. “How can I participate in the matter without even seeing the ToR?” he added. He also said that the legal framework under which the law firms undertook the investigation of the matter remained unknown.

Instead of the legal report, which came with caveats, the bank’s board could have come up with a rather honest investigation throwing light on the matter. “It is always good to be transparent and that is how things can be improved,” said Chakraborty, a 1985 batch of IAS officer, who also served as Economic Affairs Secretary.

Chopra, who was part of the team to bring about a complete overhaul in the country’s corporate governance framework post the Satyam fiasco, said while it is not mandatory for external firms or auditors to provide the ToR, “this case cannot be treated as a routine one.”

“Since the digging up started with Chakraborty’s resignation, they (the external law firms) should have provided him the terms of reference, and especially since he asked for it,” Chopra noted.

All Eyes On New Part-Time Chairman

Meanwhile, Kumar’s joining the bank is expected to strengthen its functioning.

Kumar, a 1984-batch IAS officer who retired as Finance Secretary in 2020, had also served as Secretary, Department of Financial Services.

He was instrumental in implementing several reforms in the banking sector, introducing the famous "4R strategy" -- recognition, resolution, recapitalisation and reforms. The move boosted the bottomlines of the banks.

ICICI Bank Issue

About 10 years ago, ICICI Bank was hit by a scandal related to the loan given to the Videocon group, which had invested in NuPower Renewables, promoted by Deepak Kocchar, husband of the bank’s former MD and CEO Chanda Kocchar.

An analyst highlighted that even in the ICICI Bank case, Kocchar had been initially given a clean chit, saying that there was no evidence of favouritism. “But later, as things unfolded, Kocchar had to resign,” he said.