Indian private banks’ abrupt CEO successions test focus on strategy

MUMBAI: Abrupt departures from some of India’s top private banks in recent months have exposed a need for better succession planning, prompting investors to question how likely such lenders are to stick with long-term business strategies.

India’s USD3.3-trillion banking sector has drawn strong interest in recent years from foreign investors betting on its earnings prospects in one of the world’s fastest growing economies, marked by steady management and business strategies.

The recent unexpected exits of CEOs from two of the largest private sector banks is set to test that confidence, even as those lenders boast of strong balance sheets, with bad loans near multi-year lows and capital levels robust, analysts say.

“Several recent transitions at Indian private banks have appeared more abrupt than investors would like, particularly given the importance of leadership continuity in banking,” said Gary Tan, portfolio manager at Allspring Global Investments.

His remarks came after India’s largest private lender, HDFC Bank, said over the weekend that Chief Executive Sashidhar Jagdishan would not seek reappointment when his term ends in two months, risking a surprise leadership transition.

Smaller rival Kotak Mahindra Bank is searching for a new head after its current CEO, Ashok Vaswani, said in June he would leave in December after serving a three-year term, a move that surprised analysts.

The focus on leadership transition at top private banks comes as external challenges and competitive pressure grow in India, where dominant state-owned banks and ambitious foreign banks are vying for bigger shares of the banking business.

“Greater visibility around leadership succession can help reduce uncertainty and maintain investor confidence in the bank’s strategic direction and execution,” said Tan.

Abrupt changes leave investors with questions about a bank’s strategic direction, added Tan, whose firm manages USD642 billion of client assets, shares of some Indian banks among them.

SHALLOW POOL OF CANDIDATES

India’s central bank requires bank boards to submit the names of candidates for CEO appointments or re-appointments at least six months before the end of an incumbent’s term, a deadline HDFC Bank missed with the unexpected exit of its CEO.

“The six-month rule is a regulatory minimum, not a governance standard,” said Steve Lawrence, chief investment officer at Balfour Capital Group, whose funds have invested in Indian banks including HDFC Bank.