Former HDFC Bank chairman Atanu Chakraborty reveals that his resignation was prompted by concerns over the misselling of AT-1 bonds and the bank’s overall underperformance, shedding light on governance and ethical considerations.

IMAGE: Atanu Chakraborty, former non-executive chairman, HDFC Bank. Photograph: ANI Photo

Former chairman Atanu Chakraborty said on Monday that the misselling of AT-1 bonds, which led to a rap from the regulators, and under-performance of the country’s largest private sector lender HDFC Bank were the reasons behind his resignation.

Personal differences with the management are “overblown” and it was not the issue “by a long distance” for the resignation earlier this month, Chakraborty said, stressing that “incongruence” on values and ethics led him to quit the board.

In an interview with CNBC TV-18, Chakraborty rued that the misselling of the AT-1 bonds was viewed as a “technical issue” by the bank management, and that action in the matter came eight years later, much after the regulator in Dubai and also India had raised the issue.

“I feel that these conduct issues (arising out of the misselling) should not arise… tight supervision should ensure that even if they arise, they’re nipped in the bud. However, if they are termed as technical, it leaves a little bit of a leeway,” he said.

Such conducts lead to reputational damage, Chakraborty said, reminding that people come to bank for advice and that compensation practices have to be in sync with value systems to ensure that misselling does not happen.

“The incentive structures, the oversight of the management and the board should ensure that they are aligned with the interests of depositors, shareholders, and public at large,” he said.

It can be noted that in September last year, authorities in Dubai had barred HDFC Bank from adding new customers at its branch in the Dubai International Financial Services Centre as a penalty for the alleged misselling of Credit Suisse’s additional tier-1 bonds, which were written off in 2023.

In his resignation letter, Chakraborty mentioned values and ethics as among the factors that influenced his decision to leave a year ahead of the end of term.

HDFC Bank’s Underperformance

Chakraborty also said “under-perfomance” at the bank, including in the share prices staying low, lower share of the cheaper current and saving account deposits and high cost to income ratio led to the decision, and made it clear that getting parent HDFC Ltd merged with itself had nothing to do with these factors.

He also said it is the duty of independent directors like himself to ensure better performance for the bank.

In the comments that come days after capital markets regulator Sebi advised independent directors to act responsibly and not insinuate anything, Chakraborty said he mentions “incongruence” over values and ethics in the letter, and advised people to take a dictionary’s help to understand if that is akin to insinuation.

Citing confidentiality, the former bureaucrat declined to answer questions around whether he had informed financial regulators about his thinking on values and ethics, or also if he had raised it up at the board level.

He also denied that the resignation led to a sharp correction in the bank scrip was due to his actions, adding that the Iran war and an unfavourable move by the US Fed had roiled the markets.

The decision to list HDB Financial Services was driven by a RBI mandate to go for an IPO within a timeframe, Chakraborty said, seeking to settle speculation if a potential deal with Japan’s MUFG did not have his backing and was among the reasons for the bank management’s differences with him.