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Where RBI and HDFC Bank went wrong in their response to Atanu Chakraborty’s exit

The exit of former HDFC Bank chairperson Atanu Chakraborty shows markets don’t fear bad news; they fear ambiguity.

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........

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