In a major relief to HDFC Bank, three law firms hired by the country’s largest private sector lender to review allegations of ethical and governance lapses—raised by former part-time chairman Atanu Chakraborty—have given a clean chit to the bank and its management.
Following Chakraborty’s surprise resignation on March 18, the bank had engaged two Mumbai-based law firms—Trilegal and Wadia Ghandy & Co—along with a US-based firm, after the former civil servant-turned-banker stepped down citing an “incongruence” between his personal values and the bank’s practices. However, despite repeated requests to substantiate his concerns, Chakraborty did not elaborate, prompting the bank to initiate an independent legal review on May 26.
While a bank spokesperson declined to comment on the development, a source confirmed that the findings pave the way for a potential third term for chief executive Sashidhar Jagdishan, whose current tenure ends in October. The bank is likely to send its recommendation to the Reserve Bank of India later this month.
In a parallel development, the Bombay High Court on Tuesday dismissed a corruption case filed against Jagdishan last May by the Lilavati Trust, which runs the Lilavati Hospital, calling the case frivolous.
Both developments boosted investor sentiment. Shares of HDFC Bank, which had been under pressure since the Chakraborty episode, rose 3% to Rs 796 on Wednesday, while the Bank Nifty index climbed 2.6%. Chakraborty’s abrupt resignation had earlier triggered a 13.81% fall in the bank’s share price, wiping out nearly $16 billion in market value and prompting a rare reassurance from the RBI the very next day to calm investor and depositor concerns about a systemically important lender.
The law firms are understood to have examined minutes and video recordings of board and extraordinary general meetings over the past three years to assess whether governance concerns had been raised by Chakraborty and how they were addressed. They found no lapses, noting that all issues raised at the board level were handled in accordance with prescribed processes.
Proxy advisory firm InGovern Research had last month indicated that Chakraborty’s resignation was likely driven by differences between key individuals at the bank rather than any threat to shareholder value.
Market participants also believe Chakraborty may have overstepped his non-executive role, acting more like an executive chairman and getting involved in day-to-day operations. This, they suggest, may have led to friction with the CEO, contributing to the fallout.