HDFC Bank: A board with a candid culture
In less than two decades the bank has not only survived, it has grown larger than its parent according to balance sheet size
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Mumbai: HDFC Bank Ltd was one of the 10 banks that were given a licence after the government amended the Banking Regulation Act in 1993. HDFC Bank started operations in January 1995 and has grown to become the largest private sector bank by market capitalization, beating rivals and fellow 1993 survivors ICICI Bank Ltd and Axis Bank Ltd on that parameter. It has clocked around 30% growth in net profit year after year.
When mortgage lender Housing Development Finance Corp. Ltd (HDFC) received the Reserve Bank of India (RBI) nod to set up a bank in 1994, there were doubts whether a large financial institution could nurture another one that competes for similar customers. However, not only has it survived, but in less than two decades it has grown larger than its parent according to balance sheet size.
The HDFC Bank board consists of six independent directors and five non-independent directors, which includes nominees from HDFC and executives from the bank’s management. Paresh Sukthankar, executive director of HDFC Bank and member of the board, said it has always had a significant number of independent members and consciously sought out individuals with diverse backgrounds. HDFC Bank board’s non-executive chairman C.M. Vasudev was formerly finance secretary and executive director at the World Bank. Of the other independent members, Ashim Samanta is a businessman, Pandit Palande was director of the school of commerce and management at the Yashwantrao Chavan Maharashtra Open University, and Partho Datta is an associate member of the Institute of Chartered Accountants of India. The board also includes Bobby Parikh, senior partner and leader of the financial services practice at BMR and Associates Llp, and former Maharashtra director general of police A.N. Roy.
“The open and candid environment helps the board to get different views. At HDFC Bank, we also invite seven to eight people from the management team to our board meetings, besides the three people on the board from the management side. The board can make a difference and add value by not only reviewing the numbers, but also by reviewing the strategy behind the numbers and also critique, if required. The varied background helps us with different ideas, like our chairman (Vasudev) has formerly been a finance secretary and is a government type. He brings a perspective of how the government or regulator would think. The HDFC professionals on the board bring a financial sector perspective," Sukthankar said.
HDFC vice-chairman and chief executive officer Keki Mistry and joint managing director Renu Karnad are the two HDFC nominees on board of the bank.
The bank’s non-executive independent chairman is typically a retired official who has served in the government or the regulator, Sukthankar said
“This gives us an idea on how the government or the regulator thinks. Before Vasudev, (the post was held by) Jagdish Capoor and S.S. Thakur, who were both with RBI. Also, in our bank, the compliance officer has always reported to the chairman and the audit committee. Ultimately, board members also agree to sit on the boards if they are comfortable with the company culture and that it is free and fair," he said.
Independent board member Parikh said HDFC Bank’s “reputation as an efficient organization with a fabulous track record of business performance" led him to join the board.
“My understanding is they are efficient with strong internal procedures, efficient execution, integrity and compliance. The culture and standard of governance is strong within HDFC Bank. The management is always open to discussion and if there is something to be done, the execution is very good. We, as a board, always have enough time for discussion," said Parikh.
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