HDFC Bank succession: Why the new MD and CEO will have to address multiple challenges

Months after its part-time chairman abruptly quit, HDFC Bank once again finds itself in an uncertain period with its managing director and CEO Sashidhar Jagdishan deciding not to seek reappointment for a third time.
 
This development comes at a time the country’s largest private sector lender has faced several governance-related issues, whether it was mis-selling by a few employees at its branch in Dubai or camouflaging crores as marketing spends to pay higher interest to a state government entity back home, among others.
 
HDFC Bank shares have massively underperformed in 2026, with the stock declining close to 27% year-to-date. In contrast, private sector rival ICICI Bank is up 6.5% year-to-date and State Bank of India, the country’s largest lender, has gained 5.3%.
 
Jagdishan’s decision to step down has surprised analysts as it comes just under two months before his current term ends on October 26. The bank must now act fast to find his successor, with the regulator as well as investors closely watching.
 
“With Jagdishan’s term ending on October 26, we believe the announcement on August 29 comes at a very late stage. In our view, the lateness itself is surprising, and so is the decision not to seek reappointment, which comes less than two months before his term ends,” said Ankit Bihani, research analyst at Nomura.

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The bank is understood to be looking internally as well as externally, as the RBI will need a list of potential candidates before it approves someone. Internally, a possibility is that the bank may look at Kaizad Bharucha, the bank’s deputy managing director, as a potential candidate for the top job. The 60-year-old has been with HDFC Bank since October 1995 and has been the longest-serving executive board member, joining the board in 2014. He has been the deputy MD since April 2023 and has played a key role in building the credit and risk frameworks that underpin the bank’s operations.
 
But there is a cap on the tenure of whole-time directors in private banks at 15 years. Bharucha will reach that limit in 2029. So, whether the bank gives him the keys to the corner office for an interim period or looks at someone else who can steer the ship for a longer term will have to be watched out for.

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The lender may sound out senior executives who have long experience of leading large divisions at other major banks for the role. However, analysts note whoever takes the job will have several key tasks ahead of him.
 
“The key question is not just who replaces Jagdishan, but what profile the bank wants. The next CEO will need to accelerate growth, improve deposit mobilisation/returns, extract merger synergies and, importantly, rebuild confidence around governance and senior-management stability,” said Bihani.
 
During his tenure, Jagdishan oversaw the merger of the country’s largest mortgage lender HDFC Limited with HDFC Bank, which was its subsidiary. While the post-merger phase may be largely behind, questions have been raised in the past about how much the merger has benefited.
 
“While the transition phase post-merger had impacted the financials and core earnings quality has been stabilising, some fundamental issues remain unresolved,” said Gaurav Jani of PL Capital (Prabhudas Lilladher).
 
He particularly pointed to balance sheet construct in terms of the bank’s loan-to-deposit ratio, lower net interest margin due to unfavourable incremental loan mix that has been a drag on core return on assets and management guidance versus actual execution.
 
According to Jani, HDFC Bank stock is attractive, with its valuation at a 30% discount to ICICI Bank. But he felt near-term pressure could persist until succession clarity emerges.

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While the bank’s board has assured the appointment of a new MD and CEO well within the timeline, Jai Prakash Mundhra of ICICI Securities doesn’t see an easy fix.

“While existing DMD Bharucha’s candidature is strong, we note his limited residual tenure (less than 3 years) under extant RBI norms. Given the size and franchise, attracting outside talent should not be an issue, but that option could entail usual cultural integration issues, management exits and potentially longer strategic overhaul. The board could also promote non-board internal senior personnel, which again could potentially have its own set of challenges. The appointment of a PSU banker, though unlikely, could not be ruled out,” he stated.

As such, the new MD and CEO may have to take some hard strategic pivots, feels Mundhra. He pointed out that post the merger of HDFC Bank and HDFC, the lender has seen a huge dip in CASA (current account and savings account) ratio as a per cent of external funding and therefore an uptick in cost of funds. Lending yields have also moderated, putting an “idiosyncratic pressure” on mid-term profitable growth, he pointed out.

“The new CEO could prioritise fixing the balance sheet structure, even at the cost of near-term growth,” said Mundhra.