HDFC Bank: After Puri's move, it might be a good time to book profits

A founding professional CEO, having spent a considerable time at the helm, taking the organization to stratospheric levels in terms of financial performance, brand value, and wealth creation for the stakeholders, becomes an icon, someone irreplaceable. At the beginning of this century, when the Indian stock markets were realising the importance of corporate governance and willingly paying a premium, companies like HDFC Bank, Infosys, TCS, Wipro, HUL were seen as the leaders, setting benchmarks and were considered the gold standard for corporate governance.

Change is the only constant, and when an “icon” has to make way for a successor, there is normally a turbulence, both within the organisation as well as outside, especially among the stakeholders. HDFC Bank and it’s Icon Aditya Puri today stand at that juncture, having announced Sashidhar Jagdishan as the next CEO, an HDFC Bank veteran, who joined the lender in 1996. The biggest challenge for Jagdishan would be not be to fill Puri’s shoes, but to create his own identity and chart out HDFC Bank from the predecessor’s shadow.

We have already witnessed many senior level exits in the last 24 months since the bank’s succession plan was initiated, when the then Deputy MD Paresh Sukthankar quit, and the numbers have only accelerated in the recent months with Nitin Chugh, Abhay Aima, Ashok Khanna, Munish Mittal and about a dozen more also exiting. However, the bank did not deem it fit to inform the stakeholders as it was strictly not required according to the listing guidelines, and generally a gold standard holder is not questioned. It is believed that other veterans of similar vintage within the bank were also among those in the race for the coveted post. Now one needs to see whether there would be another spate of resignations from the “other” camp.

However much we talk about institutionalisation, any person at the same leadership position for decades, creates a huge vacuum and leaves a personal trade mark, which gets engrained in the stakeholders’ mind and every action of the successor is benchmarked. Lately we have also seen a few whistleblowers question certain activities of the bank, especially the controversies surrounding the auto loan accounts wherein the GPS device was made mandatory. We don’t know yet whether corporate governance standards would again be modified to brush this under the carpet, especially after the exit of the vertical head.

Recently, market participants were shocked when Puri sold most of his shareholding amounting to Rs 843 crs. Since it’s not mandatory to disclose the end use of the funds, everyone was left guessing of what was seen as a desperate offloading by an outgoing CEO. Is there something wrong which we are not aware of or are any other controversies developing which can throw the institution off-track? However, a balanced and calculated guess suggests that he needs these funds for the last set of ESOPs which have matured. However, the timing of sale continues to raise questions.

The Covid-19 pandemic has created an upheaval in the BFSI space. However, timely intervention of the RBI and a modification of the classification norms and reporting regulations, provide a temporary respite. This has helped most in the BFSI space project a better picture in the last two quarters. However, with the moratorium ending on August 31, unless, extended, could change the numbers in the next two quarters. HDFC Bank too may, not be insulated from the pandemic afflicted NPAs and slowdown, and now with leadership vacuum and controversies regarding it’s working, there possibly could be a chink on the golden armour. Taking a cue from Puri, it could be a good time to book profits. While we have not earned the finely priced ESOPs, we could benefit by buying back at lower levels.

Ambareesh Baliga is an independent market analyst. Views are his own.