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Issues at India’s top private lender
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The Nifty Bank index has fallen about 9.88% in the past three months, suggesting weakness in investor sentiment across the sector, where both public and private sector banks operate. While, heavyweight private sector lender HDFC Bank ’s stock has declined around 21% during the same period, with the stock alone slipping nearly 7% over the past week.A series of developments at HDFC Bank came to the fore earlier this month, including the abrupt resignation of its Part-time Chairman and Independent Director, Atanu Chakraborty, who cited concerns over certain “happenings and practices” at the bank that were not aligned with his personal values and ethics. There were also media reports flagging the bank’s termination of senior-level executives linked to alleged mis-selling.While, on Chakraborty’s resignation episode, the RBI asserted that “there are no material concerns on record as regards its conduct or governance,” these episodes underscore rising concerns in India’s banking sector and signal a shift in investor focus, with governance, leadership stability, and operational irregularities increasingly taking precedence over traditional balance-sheet risks such as non-performing assets (NPAs).“Most large private sector banks have seen elevated Key Managerial Personnel (KMP) attrition in recent years, driven by business or management reorientation, retirements, career moves and, in some cases, governance issues,” analysts at Emkay Global said in a note.Meanwhile, RBI's Financial Stability Report from December 2025 showed that Indian banks' gross non-performing assets ratio, or the proportion of bad assets to total loans, dropped to 2.1% at end of September 2025 from 2.2% in March 2025, while that of private banks stood at 1.7%. GNPA for public sector banks came in at 2.5%.The Emkay note added that exits at HDFC Bank accelerated post the HDFC merger, “creating a visible credible leadership gap.”MD & CEO of HDFC Bank, Sashidhar Jagdishan, however, said in an interview to The Economic Times that the bank viewed the Chakraborty resignation episode as an unforeseen challenge, describing it as “like fighting a ghost” since no specific concerns were formally raised. He added that despite being asked to articulate issues through established processes, Chakraborty said, “I do not have any to share” and refused to withdraw the contentious remarks.The bank has now appointed both domestic and international law firms to conduct a review of Chakraborty’s resignation.Moreover, The Economic Times reported post Atanu’s resignation, that the lender has taken "remedial steps” and fired its group head of retail branch banking, Sampath Kumar, along with two other senior executives over alleged mis-selling of Credit Suisse's additional tier-1 (AT-1) bonds.About Rs 87,000 crore have been wiped out of the stock’s valuation since Chakraborty’s resignation.The pressure on the banking sector brings back memories of the Yes Bank crisis, when governance issues eroded investor trust and sharply cut the bank’s market value, leading to its removal from key Nifty indices later.In September 2018, the RBI asked Yes Bank co-founder Rana Kapoor to step down amid governance concerns, cutting short his tenure to January 2019. Despite leadership changes, including Ravneet Gill taking over, concerns lingered.By March 2020, the central bank imposed a moratorium to prevent a run on deposits, before a rescue led by State Bank of India and backed by some private lenders like ICICI Bank, Axis Bank and Kotak Mahindra Bank stabilised the bank, highlighting how governance lapses can quickly spiral into a full-blown crisis.A recent fraud case at IDFC First Bank highlights how risks are not limited to boardrooms but can also emerge from lapses at the operational level across the banking system.The Haryana State Vigilance and Anti-Corruption Bureau has arrested 11 accused so far—including six bank employees, four private individuals and one government official—in connection with a Rs 590 crore fraud involving government funds.Investigators said fake firms were created to divert money from multiple government department accounts into accounts linked to the accused.The probe has found that funds were transferred using forged debit memos and fabricated bank records, with at least 12 accounts across eight departments involved—most of them held at an IDFC First Bank branch in Chandigarh. Authorities have frozen over 100 accounts linked to the transactions.In a follow-up, IDFC First Bank said it has fully reimbursed the Haryana government, paying Rs 583 crore in principal and interest. It added that it is working with authorities to act against the perpetrators and recover the funds.More recently, a similar case emerged at Kotak Mahindra Bank, wherein, the said it is reconciling deposits and linked accounts of the Municipal Corporation of Panchkula after reports flagged a Rs 150 crore gap, adding the exercise was initiated at the civic body’s request and a large portion is already matched. The bank said processes and documentation were in order, filed a police complaint, and is cooperating with authorities.The bank said account opening processes, KYC documentation, authorised signatories and instructions were in order, and transactions followed due process and banking norms. It has also filed a police complaint and is cooperating with authorities for an independent probe.Separately, an episode at IndusInd Bank last year highlights how accounting lapses can also trigger prolonged instability, adding to concerns around oversight across the sector.At IndusInd Bank, a governance and accounting lapse led to its largest-ever quarterly loss in March 2025 and set off a shake-up at the top level, with multiple senior exits and leadership changes over the past year.The fallout saw the departures of former CEO Sumant Kathpalia and deputy CEO Arun Khurana, while chairman Sunil Mehta stepped down after completing his term, as the bank moved to stabilise operations and restore investor confidence.Since then, the bank has been rebuilding its leadership bench, appointing a new CFO, chief human resources officer and other senior executives, with CEO Rajiv Anand indicating that hiring will continue as part of an ongoing restructuring effort.Regulatory reassurances, like the RBI indicating no material concerns with HDFC Bank’s financial position, have sought to calm markets. Yet, these events show, perception can move markets as much as fundamentals.The trend suggests that Indian banking may be at a phase where oversight lapses, leadership exits and boardroom dynamics carry as much weight as asset quality metrics.For investors and regulators alike, the message is clear: the era where NPAs dominated risk assessment may be giving way to one where boardroom credibility is the new fault line.