Shares of HDFC Bank crashed 5% on March 19 and Bank Nifty was trading 3% lower amid sudden resignation of the lender's part-time chairman Atanu Chakraborty. The stock fell as much as 8.7% on March 19, which is the steepest fall since January 2024.

HDFC Bank said late on Wednesday that its part-time chairman, Atanu Chakraborty, had resigned citing differences with the lender over "values and ethics", and appointed insider Keki Mistry as interim part-time chairman.

US-listed shares of HDFC Bank, India's largest private-sector lender, slipped 7% following the announcement.

"Certain happenings and practices within the bank, that I have observed over last two years, are not in congruence with my personal values and ethics," Chakraborty said in his resignation letter, without elaborating. He could not be immediately reached for comment.

"The RBI should be on top of the issue as HDFC Bank is a systematically important bank. But since the RBI has appointed a group insider Keki Mistry in his place it could mean less alarm for shareholders" said Amit Tandon, chief executive, Institutional Investor Advisory Services, a proxy advisory firm.

At 10:07 am on March 19, HDFC Bank shares were trading 5% lower at Rs 802.1 apiece. Bank Nifty was trading 3% lower with HDFC Bank leading the losses, followed by Axis Bank and ICICI Bank, which declined 3.3% and 2.2%, respectively.

"While (Chakraborty's resignation) letter does not allege specific misconduct, perception alone can weigh on sentiment until credible steps are outlined and delivered," said Anuj Singla, analyst at J.P.Morgan.

"In our view, this could widen the governance risk premium embedded in the shares," Singla said.

Former bureaucrat Chakraborty was appointed as part-time chairman in April 2021 for a three-year term and reappointed in May 2024 through May 4, 2027.

During his tenure, HDFC Bank merged with housing finance firm HDFC Ltd in a $40 billion deal, creating a financial services behemoth.

In his resignation letter, Chakraborty noted that benefits of the 2022 merger were "yet to fully fructify".

The RBI has approved the appointment of long-time group insider Keki Mistry as an interim part-time chairman for three months, effective March 19, the bank said in its exchange filing.

Speaking on a conference call with analysts after the development, Mistry said he would not have accepted the interim role if it did not align with his values and principles.

“I would not have taken this responsibility at the age of 71 if it is not aligning to my values and principles,” Mistry said.

Mistry said the developments unfolded quickly, with board members meeting the Reserve Bank of India (RBI) shortly after Chakraborty’s resignation.

“After the board meeting got over and which Shashi gave his resignation, some of the directors of the bank went and met RBI… it happened at very short notice,” he said.

He added that the central bank’s comfort with the situation was evident in its prompt approval of his interim appointment.

“The fact that RBI are comfortable with what is going on in the bank is reflected in the fact that, within a short period of time, they approved my appointment for three months,” Mistry said.