‘Change Agent’ To CEO: Sashidhar Jagdishan Set To Bring Continuity To HDFC Bank

India’s largest private lender is preparing for a leadership transition after 26 years. Aditya Puri, who has been HDFC Bank Ltd.'s chief executive officer since inception, will step down in October and hand over to Sashidhar Jagdishan, who has been with the lender for the past 25 years.

The announcement of Jagdishan’s appointment hit exchanges on Tuesday, ending a long period of speculation over who would replace Puri when he retires.

Jagdishan was one of the two internal candidates suggested by the board of HDFC Bank. His colleague Kaizad Bharucha and Citibanker Sunil Garg were the other options. Many believed that Jagdishan was Puri’s choice after he was appointed as ‘strategic change agent’ in 2019. Jagdishan currently heads functions such as finance, human resources, legal and secretarial, administration, infrastructure, corporate communications and corporate social responsibility.

Predictability Among Uncertainty

Suresh Ganapathy, analyst at Macquarie Securities, termed the appointment as a “big positive”.

“In an uncertain environment like this, we believe an internal candidate who is in sync with the outgoing CEO Mr. Puri is the right choice. Sashi comes with a very diverse experience having handled multiple functions in the bank and hence, we believe he is the appropriate choice,” Ganapathy said in a note released after the announcement.

Jagdishan is a hard taskmaster, which is essential to ensure the execution track record that HDFC Bank has built over the years, Ganapathy said.

According to Hemindra Hazari, an independent banking analyst, Jagdishan has acted as Puri’s right hand man for so long that he has a bird’s eye view of all key happenings at the bank and his understanding of its business is strong. It, however, would be interesting to see how he manages key lending businesses, since his experience is largely in the finance function, he said. Jagdishan is known internally for keeping a strict eye on cost, Hazari said.

Any internal reshuffle among top management may also need to be watched, particular since Bharucha was also a candidate for the CEO post.

“Typically, when a senior official is proposed for the CEO spot and does not get it, they tend to leave. Considering the fact that Bharucha is in charge of the wholesale business, which is a key growth area for the bank, it would have some bearing on HDFC Bank’s strategy,” said Hazari.

According to Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services, an internal candidate will probably mean an easier transition. “The new person will always bring with them some new ideas, which will guide their leadership term. It is far better than getting someone from another organisation, with a completely different set of values, to come and lead the team here," said Parekh.

The Puri Years

Under Puri, HDFC Bank has grown mostly organically with a few acquisitions thrown in. The lender acquired Times Bank in 2000 and Centurion Bank of Punjab in 2008.

As of March 1996, according to the bank’s first annual report, HDFC Bank had deposits of Rs 686 crore and customer assets of Rs 369 crore. The bank had 10 branches then. As of March 2020, the bank had deposits of Rs 11.47 lakh crore and advances of Rs 9.93 lakh. The bank now has 5,416 banking outlets and a customer base of 5.6 crore, according to its latest annual report.

The private sector lender focused on gaining a large share of the salary account business across the country, according to a former senior official at the bank. After getting adequate information about the customer’s spending habits and their income profile, the bank targeted these customers for loans, particularly unsecured loans, the official said.

As of March 2020, the bank had retail deposits of Rs 8.79 lakh crore and retail advances of Rs 4.79 lakh crore. The bank also became a large payment player. At the end of May, HDFC Bank had 1.44 crore credit cards in circulation, the largest for any bank, according to data available with the Reserve Bank of India.

“This is a once in a lifetime situation where we have seen someone continue for 25 years. In fact if you were to write the history of private banks in India, you could very well coincide it with Aditya Puri’s career. It is unlikely that this will be repeated,” said Amit Tandon, founder and managing director at investor advisory firm IiAS.

Puri and his team stayed away from the infrastructure lending boom, which eventually led to a surge in bad loans across private sector peers like ICICI Bank Ltd. and Axis Bank Ltd. In its wholesale business, HDFC Bank focused more on the transaction business and working capital needs of its corporate clients. Wholesale lending constituted 52% of the bank’s loan book as on June 30.

Challenges Ahead

Jagdishan takes over amid an uncertain environment and recent controversies faced by the lender.

As a large unsecured lender, it could see retail defaults rise as the economy contracts due to the Covid-19 pandemic. Its bad loans have remained in check so far, with the gross non-performing assets ratio at 1.36% at the end of the quarter ended June. The bank disclosed that a little over 9% of loans are under an RBI-approved moratorium.

The bank is also facing public scrutiny over an internal investigation into its vehicle finance business, which led to action against some employees. The bank has seen the exit of three senior officials—Abhay Aima (group head of private banking); Ashok Khanna (group head of secured vehicle loans); Munish Mittal (chief information officer).

Recently, Puri sold nearly all of the shares he held through stock options received over the years, which fetched him over Rs 800 crore. This move, right before his departure from the bank, raised a few eyebrows. Ganapathy said that Puri has clarified in a call that he intends to reinvest about 70% of the proceeds in the bank’s shares.

“Aditya could have said that this is what I have sowed and this is what I shall reap. I am not going to be responsible for what someone does or does not do. The thing with large organisations is that you can discuss things to death, but the simplest explanation is usually what works the best,” said Tandon of IiAS.

The former senior official quoted above said there might be a learning curve for Jagdishan as far as businesses are concerned. But he brings to the table something which others don’t, which is the ability to bring a large organisation together and making it work toward a single goal. So while Jagdishan will have to learn on the job, his understanding of the overall HDFC Bank machine is unparalleled, the former official said.