Why HDFC Bank Needs an Independent Inquiry
By A Special Correspondent
First publised on 2026-06-27 13:02:56
About the Author
HDFC Bank's Clean Chit to Itself Resolves Nothing
An internal panel cannot credibly investigate a board it serves. SEBI and RBI must step in.
When Atanu Chakraborty resigned as part-time chairman of HDFC Bank on March 18, 2026, he did not mince words. Certain happenings and practices within the bank, he said, were not in congruence with his personal values and ethics. The statement was precise, measured, and damning. A former IAS officer of the 1985 batch who had served as Economic Affairs Secretary, Chakraborty was not a man given to theatrical exits. His resignation letter, filed with the BSE under Regulation 30 of SEBI's Listing Obligations and Disclosure Requirements Regulations, carried the weight of two years of accumulated discomfort. Markets understood the gravity immediately. HDFC Bank's shares fell over five percent the very next day. By the end of the week, the bank had bled nearly one lakh crore rupees in market capitalisation.
The bank's response was to appoint external law firms to review the allegations. Wilson Sonsini Goodrich & Rosati, a US firm, and Wadia Ghandy & Co, a domestic firm, were tasked with examining board and committee meeting minutes over a two-year reference period, conducting interviews with independent directors, the Managing Director and CEO, and senior management, and reviewing additional documents. Their verdict, submitted to the board earlier this week, was unequivocal. The contemporaneous evidence was inconsistent with Mr. Chakraborty's statement, and the review did not identify any basis for the statement. In plain language: the former chairman's allegations were not substantiated.
The bank and its defenders will treat this as the end of the matter. It is not.
The firms were appointed by the board, paid by the bank, and given terms of reference set by the institution whose conduct was under examination. They interviewed independent directors who had sat through the same meetings as Chakraborty and raised no alarm. They reported their findings to the board. At no point did any regulator, statutory auditor acting independently, or court-appointed officer exercise oversight over the scope, methodology, or conclusions of the review. This is not an independent inquiry. It is an internal inquiry dressed in external clothing.
The substantive issues at stake deserve to be recalled clearly. The Dubai Financial Services Authority flagged lapses at HDFC Bank's DIFC branch in September 2025, restricting the bank from onboarding new clients and from carrying out certain financial services activities. The underlying problem was the mis-selling of Additional Tier-1 bonds issued by Credit Suisse to non-resident Indian customers. These bonds were presented to customers as fixed-maturity, safe investments. They were written off entirely when Credit Suisse collapsed and was taken over by UBS in 2023.
Crucially, the bank's internal teams were reportedly aware of the mis-selling practices from around 2020. The issue was reportedly neither resolved nor disclosed to regulators for nearly five years. When accountability finally came, it took the form of the departure of around a dozen executives, including the former compliance officer and chief internal auditor.
Chakraborty's specific discomfort was with how management characterised these lapses. The bank's leadership described the Dubai problems as technical lapses in documentation or interpretation. Chakraborty rejected that framing. Calling a five-year concealment of mis-selling a technical lapse, he argued, does not add to the standards of ethics and reflects practices not rooted in values. This is a disagreement over moral framework, over what an institution owes its customers and regulators, over whether a technical label absolves the institution of the ethical weight of what occurred.
The proxy advisory firm Stakeholders Empowerment Services put the deeper problem squarely when it asked why the chairman remained silent for such an extended period. The question cuts both ways. If the practices Chakraborty found unconscionable had been building over two years, why did he not record formal dissent in board minutes? Why did he not escalate to the RBI? His silence during those two years, and his eventual resort to resignation rather than recorded institutional dissent, weakens his position. An independent director's obligation is not merely to hold private reservations but to exercise the institutional mechanisms available to him.
The other independent directors on HDFC Bank's board present an equally uncomfortable picture. They sat through the same meetings, reviewed the same minutes, and were present when the Dubai lapses were characterised by management as technical. None of them expressed any reservation that entered the public record.
Their collective silence is not proof that nothing was amiss. It may instead reflect what Stakeholders Empowerment Services described as the most disturbing possibility: that the board had either normalised practices that an individual member found unacceptable, or was so effectively managed by executive leadership that genuine dissent never found expression. An inquiry that interviewed those same silent directors and found their accounts satisfactory has not answered that question. It has reproduced the silence in a different form.
SEBI has initiated a review of the episode, and this is welcome. But its framing appears to focus on whether Chakraborty and the bank made adequate disclosures and whether independent directors fulfilled their fiduciary duties. SEBI's chairman Tuhin Kanta Pandey cautioned publicly that no one can make insinuations without proper evidence being recorded. This is a legitimate principle in the abstract. Applied to this case, however, it risks shifting the moral weight of the episode onto the person who raised the concern rather than onto the institution whose conduct prompted it.
The RBI has so far confined itself to reassuring markets that HDFC Bank is well-capitalised and operationally sound. Both statements are accurate and beside the point. The issue is not the bank's capital adequacy. The issue is whether governance at India's largest private sector bank met the standards that its depositors, shareholders, and the public are entitled to expect. Banks are unlike ordinary listed companies. They hold public deposits and operate under a regulatory compact that demands higher standards of governance and board oversight. RBI's supervisory mandate covers exactly this terrain, and it has the power to commission its own examination of board minutes, management communications, and the decision-making chain around the Dubai lapses.
The stakes here go beyond HDFC Bank. India's banking system rests on public trust. When the chairman of the country's largest private bank resigns citing ethics and values, and when the institution's own review finds no basis for his concerns, one of two things is true. Either the former chairman was mistaken or acting irresponsibly, in which case SEBI's scrutiny of his conduct is appropriate and should proceed. Or the internal review has produced a finding that protects the institution rather than illuminating the truth, in which case independent regulatory inquiry is not merely desirable but essential. The internal panel's clean chit does not tell us which of these is the case. Only an independent inquiry can.
India cannot afford to treat the governance of its systemically important banks as a matter to be resolved internally by the very boards under scrutiny. The HDFC Bank episode has exposed a gap in the regulatory architecture: there is no mechanism that automatically triggers an independent, regulator-led investigation when an independent director of a listed bank resigns citing ethics. That gap needs to be filled. Until it is, every internal clean chit will carry the same credibility problem that this one does. The question is not whether Wilson Sonsini is a reputable firm. The question is whether a firm appointed, briefed, and paid by the board can produce a finding that its paymaster will find inconvenient. That question deserves a regulator's answer, not the board's.
