HDFC Bank’s leadership change was one of the most watched industry events in the Indian banking sector. The bank, which has grown under the stewardship of Aditya Puri, has ultimately gone for a safer bet by choosing Sashidhar Jagdishan, who is another HDFC Bank veteran.
Like Puri, Jagdishan too has been with the lender for about 25 years. The bank had sent a list of three names to the RBI early this year.
What are the factors that worked in the favour of Jagdishan to get the top job?
HDFC Bank’s first choice: Sashidhar Jagdishan was HDFC Bank’s top choice for the CEO post to succeed Aditya Puri. The delay in finalising the name was only because the central bank was more cautious in deciding the fit and proper criteria after the Yes Bank fiasco, said a senior RBI executive to Moneycontrol.
“He (Sashidhar Jagdishan) was bank’s top choice. The central bank’s job was only to ratify the name after following process on fit and proper criteria. It is true that after the Yes Bank experience, there is extra caution in the RBI on every decision making,” said the official.
A seasoned banker: Why did the bank want Jagdishan to succeed Puri? There are not too many executives in the bank as Jagdishan who has experience across all key verticals. This made him logical choice to lead the bank, among other factors. He was the Group Head of Finance, Human Resources, Legal & Secretarial, Administration, Infrastructure, Corporate Communications and Corporate Social Responsibility.
Jagdishan also joined the bank around 1996 as a Manager in the Finance function (around the same time as Puri), and then went on to become Business Head - Finance in 1999 and Chief Financial Officer in the year 2008.
Leadership legacy: One of the reasons why HDFC Bank has remained as the favourite of investors is the legacy of the founding team which built a formidable institution over a quarter of century. A major reshuffle at the top bringing in an outsider would have worried investors at a time financial services industry is facing major headwinds.
An institution of HDFC Bank’s size wouldn’t want to take any chances bringing in an outsider to head the bank at a time the industry is in a mess due to an already slowing economy. The COVID-19 has made things worse, said a senior banking analyst. “Jagdishan is a safer bet since he is already running the show in a way,” said the analyst on condition of anonymity.
The bank’s share price jumped following the announcement as investors liked the appointment of an insider. An outsider, who isn’t familiar with the process and culture of HDFC Bank would have been a risky bet. Particularly considering that not all is well in the banking industry and within the bank itself.
A series of top level exits: There have been several senior-level exits from the bank sine FY17, many of whom were part of the bank for over a decade and contributed significantly in building the brand. A recent Ambit Capital research counted eighteen senior-level exits since FY17. These include Groups heads like Munish Mittal, Ashok Khanna, Abhay Aima, Nitin Chaugh, Rajesh Kumar Rathanchand, all of whom spent 18-25 years in the bank.
These many senior-level exits mean an outsider CEO will also have a new team and many of those who built the HDFC bank legacy over the last two decades won’t be around. That’s a key challenge. With an insider like Jagdishan at the top, that worry is addressed partly.
Jagdishan wasn’t the top choice of the bank till the time Paresh Sukthankar Deputy Managing Director, was around in the bank. Sukthankar was rumoured to be Puri’s successor at one point. But, post his exit in August, 2018, Jagdishan’s name came up for the top job.
Puri’s preference for an insider: HDFC Bank had constituted a six-member search committee last year to find a replacement for Puri and had hired Egon Zehnder for assistance. Puri was an adviser to the search committee. Puri, in the past, has expressed his interest to see an insider to succeed him in the bank.
"Our potential successor has been with us for 25 years, my successor was always in place at least in my mind. It is now for RBI to decided what has been given to them."
Certainly, Puri’s preference for an insider would have worked in favour of Jagdishan.Puri is with the bank till October this year which means his successor will have a little over two months for the leadership transition with the former boss around. Investors have cheered Jagdishan’s appointment. But, a challenging business environment and some recent controversies in the bank related to corporate governance means the new CEO has a tough job ahead.