Bagchi's big test at HDFC is winning back trust

Mumbai: Anup Bagchi, the incoming chief executive of HDFC Bank, faces the critical task of restoring investor confidence, analysts assert. With loan growth and return on equity slipping to industry standards, shareholders are seeking a more defined recovery strategy. Bagchi, 56, assumes the role of managing director and CEO, succeeding Sashidhar Jagdishan, on October 27 for a three-year term contingent on shareholder approval.

Bagchi's primary objective, according to analysts, should be to provide investors with simpler indicators of progress. The bank has set targets such as accelerating loan growth compared to the banking sector, maintaining stable net interest margins, reducing the cost-to-income ratio to 30%, and lowering the loan-to-deposit ratio to 90%.

However, the array of objectives and ambiguous timelines make it challenging to assess whether performance is improving, as per Bernstein brokerage. Pranav Gundlapalle, India head-financials at Bernstein, emphasizes that consistent achievement of one or two clearly defined metrics would significantly boost investor confidence more effectively than sporadic progress across numerous ambitious goals.

Bagchi's appointment addresses several key concerns for investors. The full term indicates regulatory approval of his selection, while his age offers him ample time to execute a substantial turnaround. As an external hire, Bagchi presents an opportunity to restructure internal dynamics and recalibrate investor expectations. Bernstein notes that loan growth and return on equity have aligned with the banking sector's averages, diminishing much of the valuation advantage HDFC Bank once possessed.

HDFC Bank's deposit franchise and superior return on assets could facilitate a return to above-average performance.

Suresh Ganapathy, managing director at Macquarie, highlights Bagchi's extensive experience in both retail and wholesale banking at ICICI Bank, as well as his insights from leading ICICI Prudential Life, an insurer. Bagchi's initial challenge at HDFC Bank may involve retaining senior executives, as Macquarie anticipates some departures following an external CEO appointment. The chief executive's top priority, according to Ganapathy, is to stabilize the senior management and curb attrition rates.

Beyond the leadership change, Macquarie identifies five operational priorities for Bagchi: reviving retail lending, especially unsecured credit; stabilizing low-cost current and savings account deposits; enhancing technology; improving customer service and leveraging the bank's subsidiaries to sell products to existing customers. Bagchi's mission is to transform these priorities into measurable results for investors.