It is not common for the chairman of a large bank classified as “too big to fail” to quit suddenly. It is even more uncommon to send in a resignation letter that raises questions on values and ethics at the bank. But this is precisely what Atanu Chakraborty, the chairman of HDFC Bank for almost five years, did earlier this month, rattling the markets, the regulators and the bank management. He wrote: “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.”
HDFC is India’s largest private sector bank by assets and market cap. It is the poster boy of India’s retail banking transformation in post-liberalisation era. A tremor here can shake the entire banking sector and raise questions about wider financial stability. To be sure, no material concerns have been raised, and the RBI has been quick to give the bank a clean chit, citing “sound financials, professionally run board and competent management team”.
This timely assurance calms the markets and is also reflective of the bank’s reputation of good governance and the consequent trust premium it enjoyed in valuations. Yet concerns remain high as was evident from the questions asked at an analysts’ call one day after the chairman quit. While it is too early to speak about likely issues at the bank in the absence of a fuller investigation, the episode once again highlights that reputations built over decades can get sorely damaged or torn apart in no time when it comes to issues of ethics and governance.
HDFC’s pre-eminent position in the sector showcases the positives of private sector efficiency in a liberalised economy. But this pre-eminence is also why the bank deserves more scrutiny and places on it a burden to transparently discuss how challenges of this kind emerge and how they might be handled. In that sense, this is a defining moment that carries implications for the bank in the immediate, and takes in its sweep the entire Indian corporate sector in the medium and long term.
It is true that HDFC has already taken a hit in terms of its reputation. This has led some voices to argue that the chairman should have spelt out his concerns with specifics rather than leave with fuzzy pointers that others must now figure out. This position has its merits. But a bigger case can be made for the outgoing chairman boldly airing his concerns in writing and in that sense forcing a relook at some of the goings on at the bank, particularly in a context where such issues are rarely discussed in the open.
Moreover, the case of HDFC deserves to be seen in a larger light and in the context of governance systems that are improving but still leave a lot to be desired. This is particularly so at the level of boards, where directors question less than they should, where dissent is usually not the norm and issues tend to get brushed aside rather than discussed in the open. It is noteworthy that the bank fired three senior employees soon after the resignation, and not before, with reports saying they were removed for their roles in mis-selling bonds in Dubai.
Broadly, the reputation of Indian banks has been hit by a spate of scandals, the latest being the amazing and alarming case of IDFC First Bank where employees are alleged to have colluded and conspired to create a hole of Rs 583 crore in the account of the government of Haryana, no less. The bank has paid off the entire defrauded amount, and the case has disappeared from the headlines with hardly any questions on how such a fraud can be contemplated, let alone perpetrated.
The recent collapse of the smaller New India Cooperative Bank, a bank rooted in serving the needs of auto-taxi drivers and small traders, was linked to questionable dealings at the very top of the bank but is now almost forgotten as a takeover by Saraswat Bank saved the day and shielded small depositors. There have also been a string of other large banking frauds, not to speak of the shocker at ICICI Bank that led to the removal of its CEO Chanda Kochhar in 2019. Add to this smaller frauds (all frauds totalled Rs 34,771 crore in 2024-25, with a high of Rs 1,54,096 crore reported in 2019-20, according to the RBI’s ‘Report on Trend and Progress of Banking in India, 2024-25’), and trust in the sector takes on a worrying dimension.
The significance of HDFC Bank lies in a journey that shows how good growth and good governance can go together. This story will hold in the changed circumstances when the tone from the top is accompanied by swift action on the ground. Tone cannot be limited to deadpan references to vision statements on boardroom walls. Tone also means openly talking about difficult issues at the risk of discomfort in the short run but with the goal of checking violations, strengthening systems and building confidence in the long haul. People down the line will get the message when boards are ready to take on these issues in right earnest and support strong action where necessary.
At the same time, obsessive growth-chasing and target-fixing is also a part of the tone from the top. That tone can create toxic environments in which bad actors can bring good, even amazing results. They can become the star performers and negatively impact the working culture. But the speeding car that ignores traffic lights will eventually crash. Who caused the crash – the bad actor or the environment that created the bad actor? The answer to that question points to the complexities of governance in an age in which growth by numbers has become the unilateral metric of success.
The Billion Press
(Jagdish Rattanani is a journalist and faculty member at SPJIMR.)
