Engagement of legal firms by HDFC Bank

 Getting a 'certificate' on Corporate Governance:
HDFC Bank may be the pioneer

I. Perplexed: I was surprised, when HDFC Bank (Bank) informed the stock exchanges that the bank's board, in order to reinforce the robust governance, took a proactive step and approved the appointment of external law firms to conduct ‘review’ regarding Mr. Chakraborty’s (ex-chairman) resignation letter. (In the resignation letter, Mr. Chakraborty mentioned that certain happenings and practices within the bank in the last two years that were not in congruence with his personal views and ethics and he quoted them as the basis for his decision to resign). I was perplexed because, the legal firms engaged for the purpose might find it  difficult to come to a meaningful conclusion about the veracity of the reasons, cited in the resignation letter, from the following available 'material' records .

1. Discussions in the board meetings: Normally all decisions approved in the bank's board are unanimous. If there are major disagreements, the agenda item is either withdrawn or rejected or deferred to a future meeting with requirements for further inputs. 

2. Minutes of the board meetings: When a policy or agenda item is passed after taking into account the objections, the minutes normally states that the agenda is passed with the additional comments/ safeguards to be taken during implementation, without going into the verbatim of the discussions.

So from the discussions recorded or in minutes of the meetings, it is very much possible that no proof may be available against the board that it acted against 'ethics and values'.

3. Video Recording: As regards video recordings of board meetings, if any, every director including the independent directors are always conscious that their speeches and actions are recorded. In my view, unless one wanted to record his dissent forcefully, the video recordings will more or less align with the minutes of the meeting.

4. Statutory auditors'/ RBI inspecting team's role: The minutes of the board meetings including the sub committee meetings are gone through by the statutory auditors of the bank every year and by the RBI audit teams during their annual inspection. If any 'ethics and values' issues indeed were raised in any board meeting, it would have found a place in the RBI inspection report and in the statutory auditors’ report attached to the audited financials. No such report is seen at least in the statutory auditors' report, published along with the audited financial statements of the bank. Incidentally RBI governor also confirmed (during his press conference on 'review of repo rate (by the MPC)' on 8th April 2026) that RBI issued a press statement of not finding any material concerns related to governance or conduct in HDFC Bank during its supervision (inspections) only after going through the record of the minutes of the board meetings in its possession.

5. Other materials: The independent directors and non-executive directors including the Chairman are entitled to air their grievances/objections through ‘whistle blower mechanism’ to the MD & CEO or DMD or any other official of the top management. But since the non-executive directors are part of the board, their writings as above and the replies furnished to them should be placed as an agenda item to the board at least for information purposes. But no such instances appeared to have happened.

II. Clarity Emerge: The Bank since published its audited annual report for the year 2025-26 along with notes to accounts and statutory auditors' report. The financial results are extremely good.

i. In the notes to accounts, there was a mention about the approval of the board on engagement of law firms to conduct a review related to the resignation letter of the Bank's former part-time Chairman. The note also records the bank's view that no material impact is envisaged on the financial statements due to the review report, which is currently in progress. 

ii. The auditor's report that accompanied the notes to accounts did not attach any 'qualification' to its report. 

iii. Per newspaper reports, while releasing the results, the bank said that the reappointment process for both Chairman and MD & CEO are underway and the board is 'seized of the matter'. Again per news from the media, the bank's board is said to have decided to proceed with the reappointment of MD & CEO only after receiving unqualified audit report from statutory auditors and review reports from the external law firms regarding issues cited in the resignation letter from the ex-Chairman of the Bank.

No one may object, if I presume that one of the main reasons for appointment of external law firms for review of the contents of the resignation letter of ex-Chairman of the Bank is to go in for the reappointment exercise of the MD & CEO, after clearance of 'corporate governance issues', if any, which were created by the said letter.

Conclusion: There are two ways of proving any case. One in a positive way by producing evidences and establishing proof. The second is by establishing that there is nothing on record to prove that adverse existed. The way the review of the issues (raised in the resignation letter of ex-Chairman of the Bank) are handled by the bank so far is an indicator,  absence of any adverse material in the records of the bank may be taken as conclusive proof to establish that the corporate governance practiced by the bank's board is robust. Are they trying to prove the proverb "All's well that ends well".

Let us wait for the final report of the external law firms that will be shared by the Bank to the stock exchanges.

Regards

V. Viswanathan.
CGM Retd e-SBT 

24th April 2026