HDFC Bank crisis: Sebi says independent directors must act responsibly, back up insinuations

In the wake of the HDFC Bank crisis triggered by chairman Atanu Chakraborty’s surprise quitting, Sebi chairman Tuhin Kanta Pandey on Monday said independent directors need to act responsibly, and back up any insinuations with evidence.

In comments that came days after problems at the largest private-sector lender, Pandey said independent directors like Chakraborty play a very important role in protecting minority shareholders’ interests on the board and outlined the process for voicing concerns as per the statutes.

Chakraborty resigned, citing concerns about values and ethics, which led to widespread worries about governance at the systemically important bank and a sharp correction in its stock prices as investors became wary.

Reading from the code of conduct for independent directors (ID), Pandey said any concern about the functioning of a company or a proposed action needs to be taken up with the board, and if the same is not resolved, include the same in the minutes of the board meeting.

Pandey said the IDs need to “act responsibly”, and added that they cannot keep things “vague”.

“Obviously, no one is expected to make any insinuations without proper evidence and recording because this has an impact on the minority shareholders’ interests. The independent directors have to be actually responsible in terms of whatever they say and record,” he said. Declining to spell out Sebi’s stance in the matter, Pandey stuck to reading the statutes but added that the capital markets regulator will go into whatever is there on the record. “Strategic detail of an investigation cannot be discussed in a press conference,” Sebi’s whole-time member Kamlesh Varshney said.

Pandey admitted that IDs have explicit powers to question a company and so on, including at forums like the audit committee or the remuneration committees, they need to be responsible and ensure minority investor interest is protected.

It can be recalled that the HDFC Bank board members, including the chief executive and managing director Sashidhar Jagdishan, have said that they were “baffled” by Chakraborty’s actions because the former bureaucrat from the Gujarat cadre did not back up his claims.

Pleas to relook at the words in the resignation letter, where Chakraborty cites concerns on ethics and values, were also ignored, as per the directors.

Three senior executives have been sacked by the bank in the immediate aftermath of the resignation for mis-selling.