India's HDFC Bank says legal review finds no basis for ex-chair's claims

HDFC Bank said on Friday a legal review found no evidence to support concerns raised by former Chairman Atanu Chakraborty when he resigned in March citing ethical differences with India’s largest private lender.

U.S.-listed shares of HDFC Bank rose 1.7%.

Chakraborty’s sudden exit had wiped out nearly 14% of the bank’s market value, about $16 billion, in the following weeks. He cited “incongruence” between his personal values and bank practices for his resignation but has not elaborated.

His departure prompted India’s central bank to issue a rare statement reassuring investors and depositors over the health of the systemic lender.

Law firms Wilson Sonsini and Wadia Ghandy conducted the legal review of the matter that has exposed leadership strain at the bank. Largely owned by foreign institutional investors, HDFC Bank has also faced ire over a stock that has struggled since a $40 billion merger with parent HDFC Ltd in 2023.

“Having now completed an extensive legal review, External Law Firms found that Mr. Chakraborty’s statement and its implications were not substantiated by the record and witness interviews,” the law firms said in a report published to stock exchanges by HDFC Bank late on Friday.

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On Saturday, Chakraborty said he had not engaged with the law firms because they did not provide him with details of their investigation.

“I was open to engaging with the foreign firm since it appeared fairly independent, but without the (terms of reference), I chose not to engage,” he told Reuters, describing the appointment of law firms as largely a compliance check.

Reuters reported exclusively last month that the law firms have not found any material deficiencies in governance or board processes.

The three-month review found no evidence from board committee minutes or witness interviews that Chakraborty raised concerns that “happenings and practices” at the bank were not aligned with his personal “values and ethics”, the law firms said on Friday.

There was also no evidence that he disagreed with board decisions regarding the “Dubai matter”, the law firms said, referring to a statement Chakraborty made to CNBC-TV18 that HDFC Bank had delayed taking action against officials involved in mis-selling Additional Tier-1 bonds to investors in Dubai.

The bank and the external law firms “repeatedly” asked Chakraborty to speak with the law firms as part of the review, but the interview did not take place, the report said.

Chakraborty responded to Reuters, “They carried out their review and concluded that the board was functioning well — of course, that was under me.”

The conclusion of the probe allows HDFC Bank to proceed with its application to the Reserve Bank of India to reappoint CEO Sashidhar Jagdishan, whose three-year term expires in October.

That application, which had been due by the end of May, had been delayed pending the outcome of the review. The central bank must approve all top appointments at Indian lenders.