‘When you’re wrestling with making a merger of that scale value-accretive, you are additionally underneath strain to continue to grow the stability sheet and chasing liabilities, and different issues begin to slip as a consequence.’
IMAGE: Aditya Puri, former CEO of HDFC Financial institution. {Photograph}: Rediff Archives
Senior journalist and writer Tamal Bandyopadhyay has watched HDFC Financial institution extra carefully than nearly anybody outdoors it. His first guide on the lender, A Financial institution for the Buck, was launched in November 2012, when HDFC Financial institution was nonetheless being learn as a poster little one of India’s post-liberalisation banking story.
His second, HDFC Financial institution 2.0: From Daybreak to Digital, arrived on the financial institution’s twenty fifth anniversary, charting its transformation into what was then routinely referred to as India’s most dear digital-first lender.
Key factors
- ‘As soon as the baton handed on to Sashi Jagdishan, HDFC Financial institution grew to become, within the final six years, a unique financial institution from what it was earlier than.’
- ‘If there’s one factor that stands out about this establishment, it is cost-consciousness. That self-discipline performs a key function in its success.’
- ‘Regardless of Jagdishan’s evident onerous work and intent, issues have not gone the way in which they need to have. A part of that’s the merger, which nonetheless hasn’t turned value-accretive.’
Six years on from Aditya Puri’s retirement, the establishment seems to be quite completely different. Sashidhar Jagdishan, who succeeded Aditya Puri in October 2020 after steering the financial institution’s know-how overhaul, introduced on August 29, 2026 that he won’t search an extra time period and can retire on October 26, as soon as his present three-year tenure ends.
The board says it’s fast-tracking his substitute.
The announcement follows a bruising eighteen months: then chairman Atanu Chakraborty’s abrupt resignation in March citing an ‘incongruence’ together with his values, a Rs 45 crore deposit-mobilisation matter involving the Maharashtra State Street Improvement Company that noticed the financial institution wonderful its personal CEO, and a inventory that has shed roughly 1 / 4 of its worth this 12 months at the same time as the broader market has held up higher.
On this first half of the interview with Prasanna D Zore/Rediff, Bandyopadhyay explains why the financial institution Jagdishan inherited was not a simple one to run, and why the HDFC merger with HDFC Financial institution sits on the coronary heart of the difficulty.
‘Is that this a unique HDFC Financial institution at the moment? Sure, unquestionably’
You might have splendidly chronicled HDFC Financial institution’s outstanding journey in appreciable element within the two books on the financial institution that you just authored.
If you take a look at the financial institution at the moment, amid questions over company governance, regulatory points and one other management transition, how completely different is that this HDFC Financial institution from the establishment you wrote about?
That is actually two or three questions rolled into one; So, let me take them aside.
My first guide got here out in November 2012. At the moment, I approached it as a toddler of financial liberalisation — India opened up banking to personal gamers within the early Nineties, gave out recent licences, and HDFC Financial institution got here out on high of that cohort. Finest on development, enterprise mannequin and, after all, stock-market valuation.
So far as governance is worried, it was by no means flagged as an issue and the absence of crimson flags is itself price one thing. However was it held up as a governance benchmark, the gold commonplace? I am not saying the financial institution lacked governance; I am saying it was by no means actually examined by that lens, positively or negatively, as a result of the query merely did not come up.
The second guide got here when the financial institution turned 25. By then, it had positioned itself as India’s digital financial institution — in order that guide was actually a journey by its know-how story.
Neither guide was commissioned or paid for by HDFC Financial institution. Each calls got here from my writer. What the financial institution did give me was entry — to individuals, to paperwork, to its early buyers.
I ought to point out, your readers would possibly discover this fascinating, that the unique concept was to write down a guide on HDFC, the guardian housing-finance firm, not the financial institution. I had initially approached Deepak Parekh — HDFC’s chairman for 30 years until 2023 — with that pitch. He turned it down politely and stated HDFC hadn’t carried out a lot price a guide.
Each he after which financial institution MD and CEO Aditya Puri cooperated absolutely as soon as I switched monitor and determined to write down a guide on HDFC Financial institution as an alternative. They then launched me to their colleagues, early buyers and walked me by the historical past. I had a couple of cups of tea and the odd kachori on the financial institution headquarters whereas discussing the guide.
If there’s one factor that stands out about this establishment, it is cost-consciousness. That self-discipline performs a key function in its success.
Now, to your actual query — is that this a unique HDFC Financial institution at the moment? Sure, unquestionably.
Puri had the longest innings of any Indian financial institution CEO — greater than 1 / 4 century. Bear in mind, the retirement age for personal financial institution chief executives was capped at 65 earlier than being raised to 70, and Puri was one in all two financial institution heads on the time who received that five-year extension proper earlier than it could in any other case have ended his time period. The opposite being the then IndusInd Financial institution chief Ramesh Sobti.
Puri had an awfully future. As soon as the baton handed on to Sashi Jagdishan, this grew to become, within the final six years, a unique financial institution from what it was earlier than.
In your commentary, what are the foremost variations between the financial institution Aditya Puri led and the one Sashidhar Jagdishan has led?
It’s important to see this in context; I am unable to reply it in isolation. By Puri’s time, HDFC Financial institution went by two mergers. The primary was with Occasions Financial institution, again round 2000. That merger was value-accretive nearly instantly — the market rewarded it quick.
The second, in 2008, was Centurion Financial institution of Punjab, itself the product of an earlier merger between Centurion Financial institution and Financial institution of Punjab. That was a share-swap deal too, however the inventory fell round 4 per cent on the day of the merger announcement. It was not value-accretive on day one.
Now come to the Jagdishan period.
His single largest process, and I am going to come to the opposite points later, was overseeing the merger of HDFC — the guardian — into the financial institution. That was a real big of a transaction.
HDFC had at all times been an odd match inside India’s monetary structure: A guardian firm holding a considerable stake in a financial institution whereas working in the identical line of enterprise, not less than in a single section.
The Reserve Financial institution of India had been pushing again on that construction for years — this is not hypothesis, I do know this for a reality — insisting it could not proceed. Due to HDFC’s dominance in mortgages, the financial institution had stayed out of that market; as an alternative, there was an association the place HDFC Financial institution sourced mortgage prospects and handed them to HDFC, incomes a fee, whereas the mortgage itself sat on HDFC’s guide.
This is the issue: The financial institution has taken lengthy to soak up this merger and profit from it. Let me clarify, with out getting too technical.
HDFC Financial institution’s conventional edge was its low-cost of funds, which saved its internet curiosity margin — loosely, the hole between what it pays for cash and what it earns on lending — wholesome.
As soon as the mortgage guide, which yields comparatively decrease, got here onto the stability sheet, the margin got here underneath strain. On the identical time, on the liabilities facet, the financial institution needed to deal with the mortgage firm’s wholesale borrowing, which prices greater than extraordinary deposits.
Pre-merger, HDFC Financial institution was recognized for prime CASA — present and financial savings account balances, a time period the financial institution itself is credited with popularising — which is low-cost cash, as present accounts pay no curiosity and the financial institution by no means wanted to chase financial savings charges the way in which some comparatively smaller non-public banks and small finance banks did and are nonetheless doing.
Submit-merger, that cheap-funding benefit eroded. Wholesale bonds and certificates of deposit pushed up the price of funds, and sustaining such an enormous mortgage guide meant the financial institution needed to maintain elevating an increasing number of cash. That, in flip, pushed up the credit-to-deposit ratio.
Add to this, the regulatory necessities — the money reserve ratio, at present 3%, on which banks earn nothing, and the statutory liquidity ratio, requiring funding in authorities bonds.
As belongings grew, the financial institution wanted proportionately bigger liabilities to fund its regulatory buffers, and no transitional concessions had been provided on any of this by the banking regulator.
There’s additionally the priority-sector lending obligation, which mandates {that a} share of the mortgage guide goes in direction of sure classes of loans.
Reasonably priced housing carries the precedence sector tag however in sync with the scale of the HDFC mortgage guide, the financial institution needed to prepare the proportionate precedence loans in different segments.
Put all of that collectively, together with some HR churn and asset-quality points that had been actual however not alarming for a financial institution of this dimension, and also you perceive why HDFC Financial institution has arguably been the worst-performing giant financial institution within the sector over the previous few years — worse, the truth is, than each giant peer barring one comparatively smaller financial institution that received its licence round 2015.
You may see it within the falling overseas institutional holding, in compressed return on fairness and return on belongings. I would not name the merger as the one contributing issue but it surely has had a direct, measurable influence on efficiency.
‘HDFC Financial institution’s stability sheet is just not loaded with unhealthy belongings’
Aditya Puri constructed HDFC Financial institution into one in all India’s most admired non-public lenders. However is not the actual check of an awesome chief in what the establishment seems to be like as soon as she or he has gone?
Has the post-Puri interval raised questions on whether or not the institutional framework he constructed was sturdy sufficient to outlast his legacy?
IMAGE: Sashidhar Jagdishan, MD & CEO, HDFC Financial institution. {Photograph}: Variety courtesy TERumel/wikipedia.org/Artistic Commons, background picture Shailesh Andrade/Reuters
That is an vital query, and it applies nicely past HDFC Financial institution — throughout company India, most establishments, banks or non-banks, promoter-driven or not.
In family-run teams, succession often passes easily to the following technology. In professionally run establishments, it is trickier, and nowhere trickier than in banking, as a result of banking offers in public cash.
And, past shareholders and the board, there may be the (banking) regulator (RBI) to approve who can be on the helm. Lastly, not like different company entities, globally, banks are sometimes recognized with the chief.
It is not like every other trade in a single essential manner: The uncooked materials and the completed product are the identical factor. I take your deposit and hand it again out, reshaped, as a mortgage or retail or company mortgage. Evaluate that to a cement plant or an oil firm — totally completely different.
As I’ve already stated, as a result of banking’s a extremely regulated enterprise, the regulator has a say in who runs it subsequent, which shareholders of a non-financial firm by no means should deal with.
Now, nicely earlier than Puri’s retirement, there was an individual extensively seen as his inheritor obvious — Paresh Sukthankar, who held the title of deputy managing director. However as Puri’s time period neared its finish, buyers had been instructed, greater than as soon as, that Sukthankar wasn’t the automated selection — that the board would resolve the successor.
Puri by no means stated Sukthankar would not get it; he merely left the query open and handed it to the board. For no matter purpose, Sukthankar left the financial institution, and the board settled on Sashi Jagdishan — the chief monetary officer who was redesignated as Strategic Change Agent in 2019, a 12 months earlier than he took over the mantle.
Regardless of Jagdishan’s evident onerous work and intent, issues have not gone the way in which they need to have. A part of that’s the merger, which nonetheless hasn’t turned value-accretive.
There are different threads too — the workforce and senior management had been, in my understanding, not at all times pulling in the identical route.
And the chairman and the CEO weren’t at all times in sync both — you can infer that from the way the previous chairman (Atanu Chakraborty) left before his term was up, and from the letter he made public, which raised governance issues with out spelling them out.
One does marvel why that letter was made public in any respect.
Why? The reply is solely governance — a lot because the board later made Jagdishan’s personal exit letter public.
The chairman chose not to elaborate; he said the specifics were between him and the RBI. However that the harm was carried out.
I wish to be clear about one factor, although. This is not the story of a financial institution whose asset high quality was so compromised that it may need collapsed with out RBI intervention — the type of scenario we have seen at a couple of different Indian banks lately, the place the regulator needed to step in, supersede boards, or power mergers to guard depositors.
HDFC Financial institution’s stability sheet is just not loaded with unhealthy belongings; this is not a case of ever-greening. The issues listed below are of a completely completely different character, and, quite uncommon for a financial institution of this dimension.
Was not sufficient thought given to the merger whereas Mr Puri was nonetheless on the helm? The financial institution will need to have recognized he would ultimately retire — so why was such a consequential transaction left for his successor to execute?
My sincere guess — and I am unable to vouch for this — is that Puri, given his stature and clout, was in a position to withstand the strain for so long as he led the financial institution as he was conscious of the negative effects, if I could so.
I do know for sure that the RBI had been pushing for the merger, given HDFC’s construction. However why it was deferred, I am unable to say definitively. It is doable the strain merely intensified as soon as Puri left and (the merger) might not be resisted.
Both manner, the merger is a contributing issue to the financial institution’s troubles — it isn’t the only one.
When you’re wrestling with making a merger of that scale value-accretive, you are additionally underneath strain to continue to grow the stability sheet and chasing liabilities, and different issues begin to slip as a consequence.
Layer onto that the sense that the board and the CEO weren’t at all times absolutely aligned — I am not questioning anybody’s judgement, however that is the impression created.
And spot what number of senior executives have left the financial institution previously few years. Folks leaving for an even bigger function elsewhere is regular in banking; that is not what I imply.
There have been departures that weren’t of that sort, together with not less than one high-profile occasion the place the RBI itself insisted a really senior government be moved on. Not less than a couple of of them had been in all probability caught within the cross-fire and needed to go away.
Taken collectively, it factors to a senior management that wasn’t functioning as a genuinely unified crew. That is my studying, and I am completely satisfied to be corrected.
