HDFC Bank announces appointment of external law firm to probe former chairman's exit

India’s largest private sector lender, HDFC Bank , weighed down by a governance cloud after its former part-time and independent director Atanu Chakraborty resigned suddenly last week, has approved the “appointment of external law firms (domestic and international), to conduct review” of his resignation letter, it said in a filing to the stock exchanges on Tuesday.

“The said law firms have been advised to provide their report on the same within a reasonable period of time,” the Bank said, without offering more details. The name of the law firms nor the timeline ahead has been offered.

Chakraborty had resigned from the bank citing ethical concerns

Chakraborty last Wednesday (March 18) had resigned from the Bank citing ethical concerns in his resignation letter, after “happenings” and practices at the Bank over the past two years, which were not aligned with his own personal ethics.

But he did not offer more details to the Bank or media.

HDFC Bank, on March 19, told analysts and the media they were unaware of the issues which Chakraborty was referring to in the letter and had, the previous day, asked him to tone down the language which Chakraborty declined to do.

The RBI, hastily, gave a clean chit to HDFC Bank, just hours after the Bank’s Board members met the banking regulator to appraise them of the developments. It then approved the appointment of HDFC Group veteran Keki Mistry as the part-time chairman for a three-month term, starting March 19.

Investors have not been fully convinced of the HDFC Bank’s observations and the stock has fallen 12% since the development. Nomura, in a recent report, is of the view that “governance uncertainty and leadership visibility gap are likely to keep the HDFC Bank stock under pressure in the near term.

The Securities and Exchange Board of India Chairman Tuhin Kanta Pandey on Monday called for greater transparency and accountability of independent directors.

 Shriram Subramanian, founder of InGovern Research, a proxy advisory and corporate governance research firm, had suggested that HDFC Bank formulate an independent committee comprising of independent directors to investigate into the matter.