A new boss at HDFC Bank is good news, but it is too early to rejoice

The bank’s chief for 26 years, Aditya Puri, is set to retire in October. A semblance of continuity now seems to have returned with the Reserve Bank of India (RBI) giving its nod to the appointment of Sashidhar Jagdishan as the private sector lender’s chief.

Jagdishan currently heads important functions such as finance and human resources at the bank.

The biggest plus is that Jagdishan is an insider and has been with the bank for nearly 25 years.

“We believe that the appointment should offer a smoother transition as Mr. Jagdishan has been closely connected internally with the management team and the board of directors, as well as external stakeholders like clients, investors and regulators... He should have about a 15-year career ahead of him—until he turns 70—and this should offer continuity as well," analysts at Jefferies India Pvt. Ltd said in a note to clients.

Puri’s shoes are large to fill, but the best person to do the job would be someone who has Puri’s vote. Investors believe that Jagdishan has that vote. “Having an insider and one close to Puri means that no big strategic changes will be done at HDFC Bank. This is a big relief," said an analyst on the condition of anonymity.

HDFC Bank shares gained more than 4% on Tuesday in reaction to the news of the appointment. In a conference call with the media last month, Puri said that a successor has always been in the making at HDFC Bank. Puri also attempted to allay fears over his exit by saying that HDFC Bank is a process-driven lender and would not face any disruption.

That said, the new chief does not wipe out all the concerns investors have. The incumbent has largely been at the financial side of the bank and his experience with business and marketing has been limited. Puri has been an unabashed marketeer of HDFC Bank and is credited with building an enviable growth track record for the bank.

“A new person will always bring change, small or big. A pandemic requires new strategies and the market has no idea what he would bring to the table," the analyst said.

Beyond the leadership issue, the lender has had some other problems that have rattled investors. It saw a series of exits from its top management; the timing of which raised eyebrows. Further, misgivings at its vehicle finance unit soured the mood too.

Jagdishan, clearly, has his plate overflowing.

While Jagdishan’s appointment has been positive for valuations immediately, what investors will be keen to see is how he ensures that the bank’s enviable growth record is maintained.