A man walks past a HDFC Bank stall at the Global Fintech Fest in Mumbai, India, 06 September, 2023.
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Shares of HDFC Bank, India’s largest private sector lender, rose 2.5% Monday before paring gains, after Chief Executive Sashidhar Jagdishan made a surprise announcement about exiting the bank after the end of his term in October.
Analysts believe that the successor’s profile could offer the bank re-rating potential, especially as the stock has been battered since the start of the year. As per LSEG data, shares of HDFC have tanked 27% since the start of the year compared with an 8% drop of the benchmark Nifty 50 index.
The next chief executive will need to accelerate growth, improve deposit mobilization and returns, and rebuild confidence around governance and senior-management stability, global brokerage Nomura said in a report on Sunday.
“A credible successor could become a meaningful rerating catalyst,” it said but added that the stock would “remain under pressure in the near term” until there is clarity on the next chief executive and the direction in which he will steer the bank.
This is the second time this year that the bank has been embroiled in a leadership crisis. In March, the bank’s part-time chair Atanu Chakraborty resigned after flagging governance and ethical concerns within the institution.
“Despite persuasion, Mr. Jagdishan reiterated his decision to not seek reappointment,” HDFC said in a release on Saturday, adding it will “fast-track the process for selection and appointment of his successor.”
Succession plan
Kaizad Bharucha, the deputy managing director of the bank, is the most likely internal choice to replace Jagdishan, Citi and Jefferies said in their latest reports.
Some of the other candidates named in the Jefferies report on Monday include Anup Bagchi, CEO ICICI Pru Life; Paresh Sukthankar, former deputy MD at HDFC Bank; Vibha Padalkar, chief executive of HDFC Life; and Amitabh Chaudhry, CEO, Axis Bank.
Jefferies, which continues to have a buy rating on HDFC Bank, said that the uncertainty over leadership “can lift cost of equity, leading to lower valuation” but said that after the share drop earlier this year the “risk-reward is balanced,” at a price-to-book ratio of 1.5 times.
Citi in its report on Sunday said that the new CEO needs to demonstrate strategic competence to deliver a credible path to scale up net interest margins and return on assets and a decisive growth trajectory with market share gain.
During Jagdishan’s tenure, HDFC Bank completed a $40 billion takeover of the country’s largest mortgage lender, the synergies from which are yet to be fully realized, as per analysts.
