A man walks past the HDFC Bank stall at the Global FinTech Fest in Mumbai, India on September 6, 2023.
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shares of HDFC BankIndia’s largest private lender, rose 2.5% before earnings on Monday after CEO Sasidar Jagdishan made a surprise announcement that he would exit the bank after his term expires in October.
Analysts believe the profile of the successor could lead to a possible rating change for the bank, especially since the stock price has been weak since the start of the year. HDFC’s stock price has fallen 27% since the beginning of the year, while the benchmark Nifty 50 index has fallen 8%, according to LSEG data.
Global brokerage Nomura said in a report on Sunday that the next chief executive will need to accelerate growth, improve deposit mobilization and returns, and rebuild confidence in governance and the stability of senior management.
“A credible successor could trigger a meaningful evaluation,” the paper said, adding that the stock “will remain under pressure in the near term” until there is clarity on the next chief executive and the direction in which he will lead the bank.
This is the second time this year that the bank has been embroiled in a management crisis. In March, the bank’s non-executive chairman, Atanu Chakraborty, resigned, citing governance and ethical concerns within the bank.
“Despite persuasion, Mr. Jagdishan reiterated his decision not to seek re-appointment,” HDFC said in a release on Saturday, adding that it would “expedite the process of selecting and appointing his successor.”
succession planning
Citi and Jefferies said in their latest filing that Kaizad Bharucha, the bank’s deputy managing director, will most likely be selected internally to replace Jagdishan.
Other candidates named in Monday’s Jefferies report include ICICI Pru Life CEO Anup Bagki. Paresh Sukthankar, former deputy MD of HDFC Bank. Vibha Padalkar, CEO, HDFC Life. and Axis Bank CEO Amitabh Chaudhry.
Jefferies continues to give HDFC Bank a “buy” rating, saying that uncertainty surrounding management “could increase the cost of equity and lead to a decline in valuation,” but said the company’s price-to-book ratio was 1.5 times, “balancing risk and reward” after the stock price fell earlier this year.
Citi said in a report on Sunday that the new CEO will need to demonstrate a credible path to expanding net interest margins and return on assets, as well as the strategic ability to deliver a decisive growth trajectory with market share gains.
During Jagdishan’s tenure, HDFC Bank completed a $40 billion acquisition of the country’s largest mortgage lender, but analysts say the synergies are yet to be fully realized.
