HDFC fate will hinge on systemic reforms

A monetary penalty imposed on HDFC managing director & chief executive officer Sashidhar Jagdishan, chief financial officer Srinivasan Vaidyanathan, and group head (retail assets) Arvind Vohra has brought more pain to the largest private-sector lender, as its shares were hammered in the morning trade on Tuesday. In the long run, however, this is likely to help the bank become healthier. The board penalised the top executives after the bank’s arrangement with the Maharashtra State Road Development Corporation (MSRDC) was reviewed internally.

The board informed stock exchanges that, during a meeting of the special disciplinary committee of independent directors, it found no conclusive evidence of mala fide action, personal enrichment, or improper motive. However, it found the three executives guilty of “business overreach.” They have also been issued “warning letters.” The punishment is small; for Jagdishan, whose package is above Rs 15 crore, Rs one lakh is like a small change. But it is symbolic and substantive, for it underlines the principle that the bosses running the bank must follow norms and procedures. Their fiduciary responsibility is twofold—to the shareholders as also to the account holders. They must be doubly cautious about their decisions and actions. Therefore, the rap on the knuckles was much needed.

The board also must ensure that the executives focus more keenly on the efforts to make the operations more efficient. Some of the numbers, like (current account-savings account) or CASA ratio, are discouraging. HDFC’s CASA deposits comprise 32.3 per cent of total deposits as of June 30, according to its press release. A higher CASA ratio, preferably over 40 per cent, is desirable, as the cost of CASA money is low. The malaise, it seems, is deeper. In March, part-time chairman & independent director Atanu Chakraborty resigned with immediate effect.

He said, “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.” Governance concerns surfaced, hitting the bank stock badly. The need of the hour is systemic reform, for episodic actions like monetary penalties and formal warnings, though necessary, will not be adequate. Decisions like that of Chakraborty to quit in March are also ineffective; in fact, it can worsen the situation. This was the reason that his sudden departure was questioned by many experts; they found it irresponsible.

After all, HDFC is not a neighbourhood eatery where change of ownership doesn’t impact much in the locality; its stock has a major presence in the BSE Sensex. For an institution that occupies a pivotal position in India’s financial system, governance standards must not only be robust but also inspire confidence among shareholders, depositors, regulators, and the broader market. The board must, therefore, now strengthen the independence and authority of its committees, establish clearer checks and balances for major business decisions, and ensure that internal audit and compliance functions operate without any influence from business heads.

Transparent reporting of governance practices and timely disclosures can further reinforce stakeholder trust. Equally important is the cultivation of an organisational culture in which ethical conduct, procedural discipline, and prudent risk management are valued as highly as business growth. Incentive structures should reward long-term sustainable performance rather than aggressive expansion alone. Meaningful systemic reform will ultimately determine the future of HDFC.