After Aditya Puri, who?

I would not like to be in the shoes of Egon Zehnder, the global executive search firm engaged by India’s largest lender by market cap HDFC Bank Ltd to identify a successor to its managing director Aditya Puri. The longest serving boss of any bank of this size globally, Puri has been at the helm since the bank’s inception in 1994.

This is the toughest assignment in the Indian financial sector — the most talked about succession plan after Tata group chairman Ratan Tata stepped down in December 2012. Puri retires in October this year.

The issue was first discussed at an analyst meet in September 2017, but the media got wind of it in 2018 after the succession issue cropped up again at an investor meet. Puri’s stance has been he has not groomed a successor as he believes that the board should choose the next CEO. The board should have done this by now as the plan has been to handhold the successor for at least six months before Puri steps down.

The search process takes time and the regulator is not expected to clear the name in a jiffy. If the person is an outsider, there is a notice period to quit the current job before taking up a new assignment.

Going by media reports, the process has not been a smooth one so far. Egon Zehnder has stepped in because an internal search committee, appointed by the board, failed to reach a consensus on the next CEO. Puri was an adviser to the committee.

Kaizad Bharucha, Sashidhar Ja­gdishan and Bhavesh Zaveri, executive directors, are the senior-most executives in the bank. Jagdishan is called a “change agent”. Media reports say Puri is inclined to have one of them — not any one — to move to the corner room but Housing Development Corp. of India Ltd (HDFC), which holds close to 22 per cent stake in the bank, is not comfortable with this idea.

It boils down to a fight between a dominant CEO, who has created India’s most valued bank, and its dominant shareholder. With a market cap of Rs 6.67 trillion, HDFC Bank is the third most valued firm in India after Reliance Industries Ltd and TCS Ltd. It is also the 14th most valued bank globally.

What makes the task difficult for Egon Zehnder is the enormity of the task for the new CEO with not unlimited upsides. The person will have to fill the big shoes of Puri, arguably India’s best banker. As the banking regulator has capped the CEO compensation at a modest level, the financial rewards will solely depend on the performance of the stock. HDFC Bank has been offering the best returns among bank stocks for the past two-and-a-half decades but continuing with such performance forever is not easy as the bank has been growing.

In December 2019, it had a loan book of Rs 9.4 trillion and a deposit of Rs 10.7 trillion. Each of its business heads runs a portfolio bigger than many of the commercial banks. The sheer size makes it imperative for the next leader to be welcomed by all with open arms. Otherwise, the bank cannot be taken to its next level. One may say that HDFC Bank has its systems and processes in place but unlike, say, the State Bank of India, which gets a new CEO every three years, HDFC Bank has been run by one person for 25 years. This has created a personality cult, which makes the job difficult for the next boss, particularly for an outsider if the banker does not have a larger than life profile.

The bank had reportedly sent feelers to Piyush Gupta, CEO of Singapore’s DBS Group, and Ajay Banga, CEO of Mastercard Inc, but neither of them is inclined to take up the job. Ashok Vaswani, global head of consumer banking and payments at Barclays Plc, could be on the radar of the head hunting firm but the compensation package will come in the way.

While Puri created the bank, HDFC chairman Deepak Parekh had chosen him to set it up. There have been differences between the bank and its promoter but, by and large, the management has had a free hand in running the bank. Incidentally, at the moment, HDFC does not have any nominee on the bank board. Keki Mistry, vice-chairman and CEO of HDFC, has recently stepped down after completing three stints on the board. Parekh has never been on the board but he attends most board meetings by invitation.

Many say Amitabh Chaudhry, former head of HDFC Life Insurance, could have been considered for the job, had he not gone to head Axis Bank Ltd. They also talk about exploring the idea of wooing back Paresh Sukhtankar, the former deputy managing director of the bank, who quit in August 2018, after a 24-year stint, citing personal reasons. At a conference call with the investors after Sukhtankar’s exit, Puri had said, “This has got nothing to do with who will be the successor... The process will start in 18 months and Paresh was a contender... I am not going to choose my successor...”

Big global banks choose leaders in advance. In October 2019, Citigroup named Jane Fraser as president and Michael Corbat, chief executive of Citigroup, said he tapped Fraser for the role to make sure that Citi is well positioned for the next decade and beyond. Months before that, JP Morgan Chase & Co put Marianne Lake and Jennifer Piepszak at the top deck to succeed Jamie Dimon, when he retires.

Both HDFC and HDFC Bank are known for corporate governance. In sync with that, it is imperative that the dominant CEO and the dominant promoter sort out the differences, if any, and choose the most suitable person for the top job to continue the bank’s incredible run. Investors apart, the group has its own interests. The bank sells 20 per cent of HDFC’s retail home loans and a large chunk of mutual funds and insurance products of the group companies. It also has a large non-banking subsidiary, HDB Financial Services.

At a time when the financial system is grappling with the problems of bad loans and low credit growth, let’s not add to its woes by washing dirty linen in public about the succession plan at a systematically-important bank.

The writer, a consulting editor with Business Standard, is an author and senior adviser to Jana Small Finance Bank Ltd. 

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