HDFC Bank MD and CEO choice key to ending succession uncertainty

This came after CEO and MD Sashidhar Jagdishan said he would not seek a second term.

Brokerages said the choice would be important in determining investor sentiment on the bank’s leadership transition and prospects for a re-rating.

While Macquarie Research said an external appointment could act as a catalyst for a re-rating of HDFC Bank’s stock, according to Jefferies, investor conversations suggest that shareholders would be comfortable with a leadership change but would not want the new CEO to be a former leader of a public-sector bank because this could complicate the transition.

The bank has not disclosed the names of the candidates. Kaizad Bharucha, deputy managing director, is understood to be the internal candidate.

Jefferies said Bharucha could be the simpler choice for the bank, given his experience across corporate, business banking and retail assets. However, his appointment could also mean a shorter tenure because of regulatory restrictions governing his tenure as a wholetime director, after he has spent more than 12 years on the bank’s board, the brokerage said.

Jefferies also said based on industry feedback, media reports, and their views, outside the bank, select people, who may fit the role, as CEO of the  bank may include, Anup Bagchi, Paresh Sukthankar, Vibha Padalkar, Aseem Dhru, Rajiv Sabharwal and Amitabh Chaudhry, based on their banking and financial-services experience.

“Surprised how fast the board has moved in terms of CEO selection process and there is more than a month now for the RBI to decide. This is not going to be an easy job for anyone who takes it,” said Suresh Ganapathy, managing director and head of India research, Macquarie Capital.

Macquarie had previously argued that an external candidate might be required, Ganapathy said, adding that any outsider could have to deal with resignations among senior office holders in the bank following the appointment and might need to overhaul the organisation. 

“Uncertain times are here. It is not going to be easy to move the elephant with a Rs 40 trillion-plus balance sheet size,” he said.

Jefferies said the board’s move had come at an opportune time and that confirmation of the appointment before the end of Jagdishan’s term on October 26 could help ease investor concern arising from the succession uncertainty.

Macquarie Research also described the board’s move as a decisive step in settling the leadership question. The brokerage highlighted the bank’s recent decision to reappoint V Srinivasa Rangan wholetime director and Chief Credit Officer Jimmy Tata wholetime director, and create a fourth wholetime director position.

“Alongside recent favourable developments in the AT1 bond case, we view this as a constructive signal that lends the company clearer direction,” Macquarie Research said in its report. 

The brokerage said the moves were a meaningful, if partial, antidote to the uncertainty surrounding the succession process and should help steady sentiment in the near term. It added that deepening the leadership bench through an additional wholetime director was a credible step in strengthening execution capacity and continuity.