Anup Bagchi, who took over as the Managing Director and Chief Executive Officer of the country's largest private lender, HDFC Bank, on Tuesday, has an unenviable task ahead of him.
The banking veteran takes over at a time when the bank has suffered a series of setbacks that have questioned its corporate governance standards and financial performance. While Bagchi is expected to turn things around at HDFC Bank, that alone is not enough. The turnaround has to be good enough to bring back HDFC Bank's lost glory with customers and investors, which it seems to have ceded to arch rival ICICI Bank in recent times. And Bagchi is an ICICI Bank product.
Bagchi had joined ICICI Bank in 1992, soon after graduating from IIM Bangalore. Over the years, he worked across retail banking, wholesale banking, capital markets and treasury. In 2011, he was appointed Managing Director of the ICICI Group's brokerage and investment banking arm, ICICI Securities. He moved back to the Bank in 2017 and, five years later, in 2023, became the Managing Director and Chief Executive Officer of ICICI Prudential Life Insurance.
His tenure at ICICI Prudential Life Insurance is marked by sustained profitability and growth in annuity products. But the company's performance on the exchanges didn't live up to expectations. The company's stock has fallen over 12 per cent since 2023.
Bagchi would be hoping for a better response from investors during his stint at HDFC Bank. The lender is going through multiple challenges. This year has been particularly trying. In March, part-time Chairman and Independent Director Atanu Chakraborty resigned abruptly after casting apprehensions about the bank's corporate governance practices. Certain practices at the bank, he said, were not aligned with his personal values and ethics.
Later it came to light that the Bank had allegedly paid ₹45 crore to Maharashtra State Road Development Corporation as marketing expenses to offer higher returns on its deposits with the Bank. After an internal review, the Board fined the lender's top three officials—Managing Director and Chief Executive Officer Sashidhar Jagdishan, Chief Financial Officer Srinivasan Vaidyanathan and Arvind Vohra, Group Head for retail assets.
Jagdishan had already been under pressure for different reasons. Soon after he took charge in 2020, the Reserve Bank of India temporarily banned the Bank from issuing new credit cards. It took 15 months for the lender to overhaul its core IT systems and resolve the issue with the RBI. Similarly, ever since the Bank's merger with housing finance major HDFC Ltd in 2023, it has struggled with a stretched loan-to-deposit ratio, or LDR. A high LDR shows that a bank is utilising customer deposits to earn higher interest. Also, its Current Account Savings Account (CASA) deposits dropped from industry-beating levels and now trail peers. CASA is important for banks as it provides the cheapest source of funding.
To give credit to Jagdishan, HDFC Bank did well to expand its network, balance sheet size and maintain a healthy asset quality. But the challenges from its merger with HDFC Ltd and the controversies surrounding its leadership have taken a toll on its stock market performance. The HDFC Bank stock has underperformed, and its valuation has also dropped under Jagdishan.
On the other hand, ICICI Bank has overtaken HDFC Bank when it comes to growth rate in topline, profitability and loan growth. Investors now value it higher than HDFC Bank.
Bagchi faces two big challenges. First is to resolve the remaining problems that arose from the 2023 merger. That will go a long way in improving its net interest income and, eventually, the profitability of the bank. Second, it matters that Bagchi is the first 'outsider' to lead the Bank. Jagdishan was groomed internally before he took over from Aditya Puri, the long-serving and influential banker who had led HDFC Bank from 1996. Bagchi will have to work harder to win the confidence of his new colleagues and make sure his entry doesn't lead to people taking the exit door. Already, HDFC Bank long-serving Deputy Managing Director Kaizad Bharucha—who was also said to be in the running for the top post—has announced intentions to leave the company at the end of the year.
If Bagchi is able to meet the two challenges, he will gain the confidence of investors. And that will reflect in the stock. But all this is a long journey. For starters, investors will be looking out for early signals from the Bank and Bagchi in the coming quarters' financial results.
