 Hello and welcome to NewsClick. I am Paranjoy Guha Thakurtha and Today's topic of discussion is India's largest private sector bank. That is the HDFC Bank and with me here Joining me from Mumbai is Hemindra Hazari. He's an independent analyst and commentator on India's banking sector He's worked in the past with several banks like UBS like HSBC like Society General and he has 25 years of experience in the banking sector writes a lot on the subject is a trenchant critic of the working of Private Bank in India. Thank you so much Hemindra for giving us your time But when we look at India's largest private sector bank HDFC Bank promoted by India's largest housing Mortgage provider HDFC housing development and finance corporation HDFC Bank is India's biggest private sector bank Now the managing director and chief executive officer of HDFC Bank Aditya Puri is scheduled to retire in October. He's arguably the longest serving chief executive officer in any private bank I mean he's been holding that position from September 1994 and as He is about to dim it office. We don't know yet who he who is successor will be We've seen a large number of top executives leaving the bank Quite a few of them under a cloud that includes group heads and the bank seems to be embroiled in various controversies among them is the forced Misselling of GPS that is geographical position systems products to those who Borrowed money to purchase automobiles and the former head of the auto division Ashok Khanna is one of the people who's left the organization together with Munish Muttal Abhay Aayma Nitin Chow, Rajesh Kumar, Ratan Chand All of whom had spent many years between 18 years and 25 years in the bank Rajeev Puresh Sukthanka the deputy managing director and then in the in the recent past 18 Top executives have left the bank I mean what explains the departure of so many top executives from the bank See the earlier departures could be explained in the sense that since HDFC Bank has been a highly successful private sector bank Their senior executives would be naturally be poached by other banks or other non-bank financial companies To get such expertise for themselves So that normally happens to any prominent successful player However, the recent departures that we are seeing in HDFC Bank is the one that needs to be examined by the market by journalists, by analysts more closely Because these individuals who have left and I named three specifically One Mr. Abhay Aayma who joined the bank nearly at its inception in 1995 and had also worked with Aditya Puri in Citibank He was heading their private banking division and he was considered a strong pillar quote unquote by the bank itself for that division He left sometime in FY 2020 Mr. Ashok Khanna who was heading their auto loans division Which mind you constituted about 9% of their total banks loans in FY 2020 And who had been with the bank for about 16 or 18 years He also left the bank it appears as on March 31st 2020 Then we have the case of Mr. Munish Mittal Who was the chief information officer Who abruptly left on 10th July 2020 Now what is noteworthy is that Two of these three reported directly to Puri that is Abhay Aayma and Ashok Khanna There was no they did not report to or any other executive director of the board because these two were business heads While in the case of Munish Mittal because he was chief technology officer He did not report directly to Puri, but I think he reported to some other executive director Now the issue is all three have served in the bank for a considerable period of time They all had very important verticals in the bank And when they leave I expect a bank of such prominence which has got a market cap of nearly 79 billion dollars Which has such very Significant foreign institutional ownership and it's the largest bank in India by market capitalization We expect that the management, you know as a good corporate governance matter That they will inform stakeholders when such individuals leave Now mind you only as per seby requirements only key management personnel Their changes have to be informed and these people that do not constitute that But nevertheless being in the important post that they that they held And because they've been such long serving in their particular post one expected a bank of this stature to inform the public Now what happened is that nobody knew about all this I started investigating this matter when I noticed in the annual report that Abhay Aayma had left And when I made inquiries, I subsequently learned that there's an anonymous whistleblower Who had been tweeting for some time that even Mr. Ashok Khanna had left And he had been tweeting this from 10th june of 2020 onwards And he had been tagging Many prominent banking reporters and editors in But there's been no coverage of their departure that even the controversial circumstances of their exits So when I started looking at what he had been saying is a very alarming things that this the twitter this anonymous source Who goes by the pseudonym of madhan lalda aria on twitter had been stating And to me when you notice such a prominent bank where they appears to have been Serious cases of misselling of a gps product in their auto loans division And the and the head of their department leaves. There is no announcement by the bank You have an anonymous twitter just tweeting all this the bank remains silent the business media refuses to investigate So thereafter after verifying that these two individuals had left I put out my own note on july 13 highlighting to the capital market and to my clients that they are these two senior people Who have abruptly left the bank The bank is not officially responding to my queries But it is evident when you look at the annual report for 2020 that these two particular individuals Left the bank. Okay. Let me subsequently and after No, yes, let me just interrupt you As you have pointed out hdfc bank is not just the largest private sector bank in india It is the darling of uh stock market investors Shareholders, especially foreign investors foreign institutional investors foreign portfolio investors And now mr Aditya Puri at the annual general meeting of the bank acknowledged that action was being taken against particular employees And we learn and you will know better That at least six of these top executives who've left in recent times were asked to They didn't leave voluntarily, but they were asked to leave. I mean in popular parlance. You can say they were sacked Be that as it may and I think some of them had to do with the division that mr Ashok hanna was in charge of now again, the amounts may not amount to very much, but there was clear Miss selling or clear. Uh, I don't know whether it may not be classified as a corrupt practice But certainly Many would argue that it was not an ethical practice that you say that you take a loan from hdfc bank to purchase a vehicle and you also have to purchase this geographical positioning system a gps device Which is manufactured by a Mumbai based company called trackpoint and each of those devices cost roughly about 18,000 rupees a piece Now How I mean, how would you link this to the overall? corporate governance atmosphere that prevailed in the bank That is precisely the point that I wish to highlight That if you notice that such practices have been going on in one particular division Of a prominent entity Which the bank on its own does not disclose But because of an anonymous twitter Of a person who's been missing blowing And because of my cover and subsequently, you know the business media picks it up Then only does the bank make some official statement It therefore, you know raises the very vital issue that are there these malpractices going on in the other divisions in the bank that we currently do not know of And what is the bank doing about it because so far to the public The bank has made it very clear that it is not going to reveal when such senior executives depart the bank Nor is it going to reveal the intricacies of any internal investigation That they may be having against any malpractices in the division So everything then is left to the bank to disclose to the market And I'm sad to say that the credibility of HDFC bank has taken a steep fall In the manner and the way they have been transparent About not only the departures of senior executives, but the circumstances of the departure because it raises a very valid Issue today that what are the malpractices if at all going on in other divisions that nobody knows about today And this is all happening when a new leader is going to come on board in October The market really does not know who that new leader is There is speculation of three names that the media has been talking about But today nobody knows that what is the who's the new leader? What is he going to be? But we now know that definitely there have been malpractices And the question it raises is that one How is it that the head of the division who's been heading that division for so long All these six people are attributed to be very close to him How is it that he was unaware all these years? What was going on because mind you Mr. Ashok Kanna had reached the retirement age of 60 In HDFC bank three years back and it is on the recommendation That he was given to us so the question it raises is a person who you knew was going to retire three years back one You had no succession planning for that post because you still wanted him to continue in that post And now we find that there were various malpractices were happening in that division Which may have involved him for all you know, we don't know that for sure But as of this moment HDFC bank is saying that he apparently is innocent But his juniors are not so all these raise a class he was a direct reporting to See he was directly reporting to the CEO so the CEO also cannot escape Any you know sense of responsibility over him. All right. So as of now We know there were certain unethical practices going on in the auto loans division of the bank We don't have any other evidence of any other kinds of unethical practices or questionable practices. Am I correct? Or do we have any other information That points to this Things not being exactly above board in the bank Look, there have been instances even earlier which RBI has Investigated as you realize in cobra post HDFC bank figured very prominently So they have been a lot of instances which market is aware of but of this particular instance the market was totally clueless Until this whistleblower started tweeting. I mean then after you and then after you wrote about it Somewhat belatedly and almost reluctantly Some of some of the mainstream sort of business media started picking up the story I want to ask you him and there are another question Uh, uh, recently we read that mr. Puri aditya Puri He had sold Most of his holding nearly 95 percent of a stake. He held in the bank Which was about 0.14 percent And uh, he has earned about 842.7 crore rupees through the sale And and i'm i'm i'm sort of trying to understand what has this got to do With the esops or the employee stock option program and also the timing of the sale given the fact That mr. Puri is scheduled to retire in october See the timing also does raise an issue because he's leaving in october And the sale has been done. I think in around 20th or 21st of july And the market came to know on the weekend Now in the normal course such a huge sale where you know, most of his holdings have been liquidated would definitely raise Uh, a major issue Because normally one would expect that the departing CEO if he sells most of his stake He expects the profitability of the enterprise to decline and therefore the share price to decline So he's encashing on the Profits today But there is also a valid reason Which the bank has really not officially stated which could be That uh, he has to fund his new round of esops, which he would get And therefore normally in companies Since senior staff who are given these esops do not Have sufficient liquidity To fund the new esops what they normally do is before the funding of the new esops comes in They sell their old shares And the the funds which they get from that sale is then reinvested into the new esops So this could be a possible explanation For the major sale of mr. Aditya puri's Shares which mind you the bank in my opinion Should officially clarify because there are not these lot of these doubts going on in the market Why is the CEO selling such a large stake? So here again, I find that hdfc bank would do a lot Better in transparency. Okay, you know, uh, we had had a discussion more than a year ago also a news clip About hdfc bank and you had at that point of time said This that the bank needs to be far more transparent In its dealings with the the public at large and and and it should put out far more far more information that it is at present If you recall on that occasion, we had discussed the report of the banking ombudsman scheme for the year that ended in june 2019 and and the reserve bank of india had released the report and among the highlights of that particular report was that hdfc bank Together with kota Mahindra bank was very high in terms of the number of complaints per bank branch the number of complaints per thousand bank accounts and and one of the state one of one bit of The statistics that in the year 2018 19, which is more or less consistent with the previous years as well hdfc bank Had shown roughly three complaints per branch Whereas the banking sector as a whole If the number was less than half it was 1.4 complaints per branch Which means that even as this bank claims that it is extremely customer friendly It wasn't really that customer friendly if one is to believe the report of the banking ombudsman True and you see it is to be expected because if you see their ramp up in their Their business in their number of clients are the volumes of business that they are handling When you have a bank which is growing that fast Evidently your systems really cannot cope with the type of volume of business And that you see then in the complaints that are given and which are then reported to the reserve bank of india Also, if you're not today the twitter and the social media is becoming a major source of information Because when it comes to large and prominent companies, you find that the business media as a deliberate policy Refuses to report on anything. So if one wants to know Actually what is happening in these banks, especially some of the, you know, the negative aspects It is most unfortunate that one has to go to social media really to come to know what is happening So if I may just add here one of the obvious reasons why this is so Is because agfc bank is a major advertiser And the the publications and other media outlets Television channels, they are dependent on advertising. So that could be one of the reasons why There is less reportage about the negative aspects of banks like the hdfc bank and and The other point that you mentioned even a year ago And I want to ask you whether things had changed if you recall For almost a week in december 2019 We had their bank breaking down their their their digital systems broke down And and again, this is the same bank which talks about how how Friendly it is with those who bank on the internet And and we found that there were a lot of problems because they didn't inform Their users and they didn't compensate users for their loss Because what we found was that the mobile application had failed earlier in december 2018 And in in other banks, whereas we found there were a lot of complaints about ATMs automatic tele machines and debit cards in the case of hdfc It was more there more complaints were about the way their credit card systems work Their credit card operation, which is was one of the highly remunerative divisions of the bank It's a market leader impact in that area So the question that I have for you is at that point of time you said that a It disregarded brazenly the losses incurred by Customers because of the failure of their digital systems and most importantly You were critical of the fact that they didn't seem to have a digital recovery plan Are those still comments still valid a little more than a year down the line? See till today we do not know what exactly went wrong You see when you a bank has such a major disaster When so many of its customers are less stranded and when it claims to be a digital bank and its digital operations do not work For a critical period of time one expects an official explanation From the bank of what exactly happened and what measures has the bank taken to prevent such an occurrence Now till today the bank has been totally silent on it The regulator of the reserve bank said they are investigating and that's all that we heard then from the regulator the regulator Also has not put out any statement to the public So today one really does not know the media of course refuses to do any independent Investigation to find out what has happened So there is this basic ignorance to banking customers to stakeholders when things go wrong It's only when things are going right and the bank gets awarded with best bank award and best You award that there is mass publicity given but when any of such critical aspects Which the public has to be kept informed you find that there is this cloak or silence and nobody wants to lift that cloak But thank you so much For talking to news click And time alone will tell whether mr. Adityapuri's successor whoever that person is whoever the reserve bank of india proves Well, he will surely have A number of legacy issues and legacy problems to deal with and and i'm sure Many are not envying whoever this person is going to be Would you like to make a few closing comments before we wind up? As I said again, I think the role of hdfc bank as the lead bank on the capital market It should conduct itself in a more responsible manner It should disclose more than what is officially required And it should be more transparent You see especially at such critical junctures where there's so much speculation and rumor And where one comes to know from an unofficial anonymous source and the bank Is being quiet about it So it just adds to the uncertainty at a very critical juncture when the founding ceo is leaving after 25 years As it is there is a considerable uncertainty in the bank and then we get such episodes Where the bank unfortunately does not satisfy The public or stakeholders queries on what exactly is happening and how is the Bank going to resolve these things in the future as well Okay, and regardless of what the market cap is its stature in the market You know these things are extremely important And if it fails to do so it is the role of the media and of the analysts then to do their job It's sadly they have been failing to do Well, thank you so much. Amindra Hazari for speaking to news click And thank you for explaining in considerable detail what's been happening in hdfc bank of late and All the viewers of this program Keep watching news click