No systemic risk, says RBI on HDFC Bank chairman's sudden exit

MUMBAI: The Reserve Bank of India (RBI) on Wednesday sought to allay governance concerns after the sudden exit of former HDFC Bank chairman Atanu Chakraborty, saying the development does not pose a systemic risk to the banking sector.

Addressing the issue at the post-policy conference, RBI deputy governor Swaminathan J. said the developments are idiosyncratic and confined to the institution.

“These are entity-specific developments and do not pose any systemic risk at this point in time… the banking system is old and very resilient, and we continue to focus on improving the conduct of related matters and governance related matters,” Swaminathan said.

Any individual supervisory concerns, as and when it arises, are dealt with on an ongoing specific basis, he said, adding that if anything requires that the system be driven on a regulatory tweak, then the central bank is not averse to taking such measures.

However, at this point in time, no event warrants a prevention measure or a regulatory tweak, the deputy governor said, adding that these are episodic events and the central bank will handle it on a regular basis.

Chakraborty’s abrupt departure, reportedly citing ‘ethical and governance concerns,’ had raised eyebrows across the financial sector, prompting questions on oversight and internal controls at one of India’s largest banks. However, the RBI moved swiftly to contain any spillover fears.

“According to us, I would like to reiterate that no material concern is there related to governance or conduct,” RBI governor Sanjay Malhotra said, answering a media query at the conference.

Malhotra also said that regulatory frameworks and supervisory mechanisms remain robust. Market participants had initially reacted with caution, given HDFC Bank’s systemic importance and weight in benchmark indices. However, analysts had said that while governance lapses at a large institution can dent sentiment, RBI’s strong messaging is aimed at preventing broader contagion.

Separately, the central bank also proposed to issue a draft circular on how matters of the bank must be placed before the boards, along with their periodicity, are determined by the boards themselves, guided by the seven broad themes prescribed by the RBI.