HDFC Bank is awaiting the outcome of an additional review being conducted by its independent directors before it makes a recommendation to reappoint its CEO Sashidhar Jagdishan to India's central bank, three sources told ‌Reuters. HDFC has faced ⁠investor scrutiny ⁠since mid-March when its former chairman Atanu Chakraborty resigned abruptly saying practices at the bank were not in line with his "personal ethics". An external legal review completed last month found no evidence to substantiate the governance concerns he raised.

A bank spokesperson had no immediate response when contacted by Reuters for comment from HDFC and Jagdishan on the additional inquiry, which has not been previously reported. During a post-earnings call on Saturday, HDFC management said the CEO succession process remained a "work in progress".

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HDFC's board has yet to approve its recommendation to reappoint Jagdishan, whose ⁠term ends ‌in October. Reserve Bank of India (RBI) rules require a bank board to apply for the reappointment of a CEO or submit fresh names for the position six months before a chief ⁠executive's term ends.

In a rare comment, the RBI said in March that based on its periodic assessments, there were "no material concerns on record as regards its conduct or governance".

Additional review by independent directors

The sources, who are directly familiar with the matter, told Reuters the delay is due to an additional review being conducted by independent board directors. The sources declined to be named because they are not authorised to speak to the media. This review is looking into media reports in May which said that HDFC offered preferential rates on certain large deposits, which is not permitted under ‌RBI rules, the sources said.

An HDFC spokesperson told Reuters then in response to the reports that the bank has robust internal oversight, audit and control processes and systems.

"The board committee will take a final call on ⁠proposing Jagdishan for reappointment after the independent directors submit the findings of the review," said one source, while a second said it is likely to be completed in early August.

The review has not so far indicated any wrongdoing, two of the three sources said.

Management continuity remains the biggest overhang over HDFC's share price, which has underperformed since March 18.

HDFC shares, the largest constituent of both the Nifty 50 and Sensex indices, have fallen 7.4% since Chakraborty's resignation, compared with a 4.6% gain in the Nifty Bank index.

"We believe that (the) bank's re-rating is contingent on resolution of (the) top management saga," Nuvama Institutional Equities, a brokerage firm in India, said on Monday.