Speculations that Aditya Puri’s successor at HDFC Bank will be an insider got intensified after the lender on April 8 intimated stock exchanges that the Reserve Bank of India (RBI) has put on hold the appointment of two key executives on the Board.
The RBI said the appointment of Sashidhar Jagdishan and Bhavesh Zaveri each as an Additional Director and Executive Director (Whole-Time Director) of the Bank should be put on hold until the new managing director and chief executive officer takes charge.
“We are now in receipt of a communication dated April 7, 2020 from Reserve Bank of India stating that since these are important positions in the Bank, the Bank is advised to examine and submit the proposal after a new MD and CEO assumes charge later this year. The Bank shall accordingly ensure compliance with Reserve Bank's instruction as above,” said the bank in a filing to exchanges.
Jagdishan and Zaveri will continue as additional directors of the bank till the annual general meeting later this year, the bank said. In November last year, the bank had named both executives as additional directors and EDs. But from now on, they will continue only as additional directors till the AGM. The bank will have to likely approach the RBI again once the CEO comes on board.
The RBI decision is significant considering that both Jagdishan and Zaveri are seen as strong contenders to the post of HDFC Bank’s managing director after Puri’s retirement slated in October this year.
HDFC Bank was supposed to send its list of shortlisted candidates to the RBI this month. The speculations on an internal candidate strengthened after Puri, in a recent interview with CNBC -TV18 seemed to suggest he preferred an internal candidate.
"I am rooting for the best candidate. So, I am saying an internal candidate is good because he would know the people, he would know the system etc. and his acceptability will be higher. So, when you go outside you obviously look for that exception," Puri said. Puri is also an adviser to the selection committee to identify his successor and he is perceived to have a significant say in the process.
Till the time of his exit from the bank, Paresh Sukthankar, former Deputy Managing director of HDFC Bank and a trusted lieutenant of Puri was seen as a worthy successor to his boss. But Sukthankar surprised the markets by quitting in August 2018, thereby confirming the ensuing hunt for another candidate. The bank has appointed Egon Zehnder for this purpose.
“It is highly likely that Puri’s successor will be an internal candidate. An external candidate will be less preferred for the bank considering the size and depth of the organization. There are very few examples of external candidates moving to large banks as CEOs and proving to be successful,” said a Mumbai-based analyst. He didn’t want to be named.
One reason why the RBI put the proposals for board appointment of Jagdishan and Zaveri on the Board could be the fact that both these names could be part of the shortlist for MD post, the analyst said.
Puri took charge as managing director in September 1994. HDFC Bank was listed on the Bombay Stock Exchange on May 19, 1995. Between then and now, the market capitalisation of the bank has grown to Rs 505,942 crore from Rs 440 crore. Total deposits grew to Rs 11.46 lakh crore in March 2019 from Rs 642 crore in March 1995 and total advances swelled to Rs 9.9 lakh crore from Rs 98 crore.