HDFC Bank shares fall sharply over 8% after Chairman Atanu Chakraborty resigns citing governance concerns

HDFC Bank shares fell more than 8% on March 19, triggering a sharp reaction in the market after the bank’s Part-time Chairman and Independent Director Atanu Chakraborty resigned, citing concerns related to internal practices and governance.

In his resignation letter dated March 17, Chakraborty stated that certain developments within the bank over the past two years were “not in congruence with my personal values and ethics.” He added that there were no other material reasons behind his decision to step down, making it clear that his exit was primarily driven by these concerns.

The development has come at a sensitive time for HDFC Bank, which is still navigating the integration process following its merger with HDFC Ltd. The merger, which created one of India’s largest financial conglomerates, was seen as a major strategic milestone. However, Chakraborty noted that the expected benefits of the consolidation are yet to fully materialise.

Following the resignation, the Reserve Bank of India approved Keki Mistry as the interim chairman, ensuring continuity in leadership at the board level. The appointment is expected to provide stability as the bank deals with the immediate fallout of the development.

Investor sentiment turned cautious not just in domestic markets but also overseas. HDFC Bank’s American Depositary Receipts (ADR) declined more than 3% after opening, indicating a negative initial reaction from global investors as well.

Brokerages Call on HDFC Bank

Kotak Institutional Equities has maintained a “Buy” rating on HDFC Bank with a target price of Rs 1050, but flagged that valuation multiples have already seen a meaningful de-rating. According to the brokerage, the latest development could delay the bank’s recovery, making normalization slower than earlier expected. It added that a re-rating of the stock appears unlikely in the near term, unless current concerns are decisively resolved and the overall news flow improves.

The bank also announced the appointment of Keki Mistry as Interim Chairman for a period of three months, following Chakraborty’s exit with immediate effect.

JPMorgan has taken a more cautious stance, maintaining a “Neutral” rating with a target price of Rs 1090. The brokerage noted that the chairman’s resignation adds to existing macro headwinds and could weigh on sentiment, leading to elevated volatility in the near term.

Two key observations from Chakraborty’s resignation letter stood out for JPMorgan. First, he cited that certain developments and internal practices at the bank over the past two years were not aligned with his personal values and ethics. Second, the anticipated benefits from the HDFC Bank and HDFC Limited merger are yet to fully materialize.

JPMorgan believes the stock could remain under pressure following the announcement, especially amid a softer macro environment and ongoing geopolitical uncertainties. It also highlighted that while the resignation letter does not allege specific misconduct, the language raises concerns about potential disagreements between the board and management. This could impact board-level cohesion and, in turn, execution and decision-making going forward.