India’s largest private sector lender, HDFC Bank, is preparing to reappoint its Managing Director and CEO, Sashidhar Jagdishan, for a third term, despite an earlier internal vigilance probe that reportedly named him and several senior executives in connection with a Rs 45-crore payment to the Maharashtra State Road Development Corporation (MSRDC). The development has brought renewed focus on the bank’s governance and the role of the Reserve Bank of India (RBI) in approving key leadership appointments.
The controversy stems from a vigilance investigation ordered by HDFC Bank’s Audit Committee in March. The probe examined a Rs 45-crore payment made to MSRDC, where allegations suggested the bank disguised additional interest payments as marketing expenditure to secure a large government deposit, allegedly bypassing RBI’s rules on uniform deposit rates.
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According to the vigilance report, more than 10 senior officials were named, including Managing Director and CEO Sashidhar Jagdishan, Chief Financial Officer Srinivasan Vaidyanathan, and Chief Marketing Officer Ravi Santhanam. The report reportedly stated that Santhanam admitted his department acted as a facilitator in classifying the payment as marketing expenditure.
Chairman’s exit
Shortly after the vigilance probe was initiated, then chairman Atanu Chakraborty resigned from the bank, saying that certain practices he had observed over the previous two years were not in line with his personal values and ethics. His resignation triggered widespread speculation over governance issues at the private lender.
On June 26, however, HDFC Bank informed stock exchanges that an independent legal review conducted by two law firms found Chakraborty’s allegations were not supported by board records or witness interviews. The review concluded that no significant governance lapses had been established during the period under examination.
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The findings stand in contrast to the earlier internal vigilance report, which had reportedly identified senior executives in connection with the MSRDC payment.
CEO extension
Following the legal review, HDFC Bank’s governance, nomination and remuneration committee will recommend Jagdishan’s name as Managing Director and CEO. Reports indicate that the board could take up the proposal by the end of July, with RBI approval required before any reappointment can take effect.
Meanwhile, the RBI had extended the tenure of interim chairman Keki Mistry until September or until a permanent chairman was appointed. Since then, HDFC Bank has nominated former Finance Secretary and former Chief Election Commissioner Rajiv Kumar as its new part-time chairman, subject to RBI approval.
Also read: Atanu Chakraborty quits as HDFC Bank chair citing ‘ethical concerns’
Separately, HDFC Bank has also stopped pursuing government deposits from July 1, a move that comes amid scrutiny over the MSRDC payment.
RBI’s role
The focus now shifts to the RBI, which has the final authority over the reappointment of HDFC Bank’s Managing Director and CEO. The regulator’s decision will also determine whether the leadership transition at the bank proceeds as planned.
The contrasting conclusions reached by HDFC Bank’s internal vigilance investigation and the externally commissioned legal review have placed the bank’s governance processes under scrutiny, even as the institution moves ahead with leadership appointments.
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