THE TRUST TEST

India’s largest private sector lender remains fundamentally strong, but governance concerns are testing the trust premium that has long set HDFC Bank apart

- By Urvi Shrivastav [e-mail]

The Reserve Bank of India’s (RBI) approval of a three-month extension for Keki Mistry as non-executive chairman of HDFC Bank provides continuity at the top of India’s largest private sector lender. While the move ensures near-term leadership stability, it also underscores that key governance and succession questions remain unresolved.

The extension comes as HDFC Bank navigates an unusual challenge. Unlike most episodes that test financial institutions, the current scrutiny is not about capital adequacy, profitability or asset quality. Instead, it centres on governance, institutional culture and trust — qualities that have long underpinned the bank's premium valuation.

The Governance Questions

The governance debate has unfolded through a series of developments over the past several months.

The first major trigger was the resignation of former chairman Atanu Chakraborty, who said in his resignation letter that certain developments over the preceding two years were inconsistent with his personal values and ethics. Given the rarity of such departures from the chairmanship of a major financial institution, the resignation immediately drew the attention of investors and governance observers.

Following the resignation, HDFC Bank commissioned an independent legal review by Wilson Sonsini Goodrich & Rosati and Wadia Ghandy & Co. Over three months, the firms reviewed board and committee agendas, minutes, internal documents and interviewed directors and senior management.