When the chairperson of India’s largest private bank resigns citing “values and ethics”, the system is not expected to have all the answers. But it is expected to ask the right questions. The institutional response to Atanu Chakraborty’s sudden resignation from the board of HDFC Bank suggests otherwise.
In the hours following Chakraborty’s sudden exit on 18 March, both the HDFC Bank’s board and the Reserve Bank of India (RBI) moved quickly to reassure markets—but offered little by way of facts. In doing so, they revealed a deeper problem in Indian corporate and regulatory governance: We are poor at managing ambiguity.
In the face of this ambiguity, the popular discourse has since come to perceive Chakraborty’s sudden resignation as an episodic, almost impulsive, personal decision. But treating it as a personal dispute hardly does justice to its seriousness. At its heart is the sudden exit of a chairperson-cum-independent director of India’s second-largest listed company, one whose credit rating often rivals that of the sovereign.
The resigning chairperson and the HDFC board owed shareholders and the public an explanation for his abrupt exit. The RBI, for its part, owed the bank’s depositors and customers greater caution before issuing what amounted to a governance guarantee. While reassuring markets about financial soundness is routine in times of stress, offering a clean chit on governance in the absence of facts is not.
The sanguine treatment of the matter reflected in the stock’s performance. Markets may not price ethics well—but they price ambiguity instantly. On 19 March, the day after the resignation, the HDFC Bank stock declined by about 5 per cent. By 23 March, the decline had extended to 11%. This, despite the unanimous assurance of the board and the RBI that all was well. The stock price recovered slightly on 24 March —thanks perhaps in part to the board’s assurance of an inquiry by external law firms—but has not returned to the pre-19 March levels.
A paradoxical resignation
On 18 March, HDFC Bank notified the stock exchanges of Chakraborty’s sudden resignation from the board of directors of HDFC Bank. The outgoing chairperson offered the following reason for his resignation:
“Certain happenings and practices within the bank, that I have observed over last two years, are not in congruence with my personal Values and Ethics. This is the basis of my aforementioned decision.
I confirm that there are no other material reasons for my resignation other than those stated above.”
On the one hand, the resignation reinforces the role of an independent director. Independent directors are set up as the institutional sceptics. They are supposed to ask the uncomfortable questions, raise a stink when things get murky, and support the board when its decisions are in the company’s best interests. By design, they will have conflicts with the rest of the board. If anything, the usual complaint about Indian corporate governance is that independent directors are not sufficiently sceptical. Viewed thus, and presuming good faith on his part, Chakraborty’s actions would align with this vision of an independent director’s role in a company.
The institutional sceptic’s role, however, is not an end in itself. Independent directors, like all directors, owe fiduciary duties to shareholders, oversee the board and management, and, in cases such as this, uphold public trust. A resignation citing “values and ethics” is therefore not a routine exit—it is a serious signal. It raises questions not just about internal disagreements, but about whether those concerns could affect shareholders, depositors, and the integrity of the institution itself.
In such circumstances, fiduciary duty requires more than exit. It requires clarity on what prompted the resignation, what steps were taken to address the concerns, and whether those issues persist.
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The board’s exercise in ambiguity management
On the morning of 19 March, HDFC Bank organised an investor call. The directors present on the call did not offer any new information or factual explanations for the sudden resignation. Instead, they emphatically insisted there was nothing wrong on the governance front. The bank insisted that it had robust internal controls and governance, relying on generic assurances about systems and controls using standard corporate speak, as opposed to a facts-based response.
Keki Mistry, who was appointed as the interim chairperson, repeatedly assured that his acceptance of the position at a late age of 71, by itself, ought to assure the public of the bank’s governance standards. Given the seriousness of the accusation in Chakraborty’s resignation, one might have expected a more measured response from the board.
In sum, the HDFC board sought to frame the chairperson’s resignation as a personal matter, effectively portraying the bank as a victim of a disgruntled independent director. This may well be true—we simply do not know enough. The problem is that, in trying to reassure the public, the bank relied on a personality-driven narrative rather than a facts-based response, creating more opacity instead of signalling a willingness to examine the issue. Markets priced this ambiguity in. It was only after the bank announced an external review by two law firms that the stock began to recover.
RBI’s governance endorsement
On the day following Chakraborty’s resignation, the RBI issued a press release declaring that HDFC Bank’s financials were sound, the bank was well-capitalised and had sufficient liquidity. In the face of panic, banks are vulnerable to runs due to the inherently fragile business model of converting short-term liabilities into long-term assets. When faced with shocks, banking supervisors routinely assure the public about the financial soundness of the banking system, and in exceptional cases, specific banks.
The RBI’s press statement stood out not for its assurance on HDFC Bank’s capital adequacy and liquidity, but for endorsing the bank’s governance despite the chairperson’s resignation explicitly citing ethical concerns. The RBI endorsed HDFC Bank for its “professionally run board and competent management team”, adding that periodical assessments had revealed no material concerns as regards its conduct or governance. Instead of an assurance that it will look into the matter, the RBI declared that it would continue engaging with the HDFC board and the management on the way forward.
While the RBI clarified that it had engaged with the HDFC board, it did not say whether it had spoken to the resigning director. This is someone it had deemed “fit and proper” to serve on the board. His resignation—despite the reputational and professional costs it entails for him—was unlikely to be impulsive. That alone should have invited greater scrutiny. Yet, the RBI appeared to move quickly to reassure rather than to inquire.
Compare this to the sudden exit of RBL Bank’s former CEO, Vishwavir Ahuja, in 2021, on ‘medical grounds’. The RBI’s response was a tightly worded assurance on the bank’s key financial metrics, with the precise capital adequacy, provisions, and liquidity ratios specified in the press release. The RBI refrained from offering a governance guarantee for RBL Bank. On the contrary, it appointed an additional director on the RBL board as it “felt that the board needs closer support in regulatory / supervisory matters”.
While the RBI acted as a watchdog in the RBL Bank case, it played more of a ‘stabiliser of market expectations’ role in the HDFC Bank case.
A review of several sudden exits from the boards and management of banks abroad—ranging from the CEO of Barclays to HSBC—shows that bank supervisors offer explicit endorsements of financial soundness in exceptional cases. Even in these, they refrain from offering a clean chit on bank-specific governance.
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Managing ambiguity
Atanu Chakraborty’s abrupt exit from one of India’s most respected companies, citing “values and ethics”, will likely enter corporate folklore—perhaps second only to Ramalinga Raju’s exit from Satyam. But the institutional response to his resignation may be forgotten more quickly. That would be a mistake, because it is this response that holds the more important lessons for India.
In moments of uncertainty, institutions reveal their instincts. Faced with ambiguity, India’s instinct is to reassure first and investigate later. That instinct may stabilise markets temporarily, but it weakens the credibility of both corporate boards and regulators. The real test of governance is not how institutions act when facts are clear, but how they respond when they are not.
Bhargavi Zaveri-Shah is the co-founder and CEO of The Professeer. She tweets @bhargavizaveri. Views are personal.
(Edited by Prasanna Bachchhav)