HDFC Bank delivered 25,000% return under Aditya Puri. Can Jagdishan beat that feat?

Investors gave a thumbs up to the HDFC Bank stock on Tuesday after reports that the Reserve Bank of India (RBI) has confirmed the name of Sashidhar Jagdishan to succeed Aditya Puri as the new Chief Executive and Managing Director of the country’s largest private lender.

Jagdishan, currently working as ‘change agent’ and head of finance at the bank, has been with it since 1996. The appointment will put an end to one of the most keenly watched successions in India’s banking industry. He will take over from Puri this October.

Puri joined HDFC Bank in September 1994 with the vision of creating a world-class bank and became the longest-serving head of any private bank in the country.

Shares of HDFC Bank got listed on BSE in May 1995, six months after his appointment. Since then, the stock has delivered 25,000 per cent returns to investors till date.

Dipan Mehta, Founder and Director, Elixir Equities, told ETNOW that HDFC Bank has navigated many threats and grabbed various opportunities over these 25 years.

“Considering the appointment of an internal candidate, who has been part and parcel of team that built that kind of a legacy, I do not think there should be much of an issue,” he said.

“If it was an external candidate, then there would have been some transition time and acceptance of that candidate by other senior management. It would have had its own risk factors. All those risks do not arise now,” he said.

During the past 25 years, return on assets of the lender has grown from 0.02 per cent in 1995 to 1.89 per cent. Likewise, return on equity increased to 16.40 per cent from 0.72 per cent and return on capital employed to 15.27 per cent from 0.62 per cent.

RBI, which was given a list of candidates in order of priority, conveyed its approval to Jagdishan’s name late last evening, PTI reported.

The bank will eventually make an announcement to the exchanges about the RBI nod.

The bank had shortlisted two internal candidates Sashidhar Jagdishan and Kaizad Bharucha, and one outsider -- Citi’s Sunil Garg -- as probable successor.

Puri had recently assuaged shareholder concerns at his last annual general meeting as the MD and CEO, that succession has been taken care of.

With the appointment of Jagdishan, the uncertainty over the leadership position has been resolved. All eyes will now be on what will be the bad loans once the moratorium is lifted and how the bank is going to deal with the issue.

“One of the biggest uncertainties hanging over HDFC Bank has been lifted and that itself is a great relief for investors. Jagdishan is a well-recognised person in the industry. This is very positive for the bank, but the environment is not clean or there is going to be stress in the system because companies will have cash flow issues. Demand revival will take at least a year and a half to come back,” Pradip P Shah, Chairman of IndAsia Fund Advisors told ETNOW.

Lalitabh Srivastava, AVP Research, Sharekhan, said Sashidhar Jagdishan’s appointment is a positive for HDFC Bank, as it will provide continuity with leadership being an insider and part of the management. “The big overhang has gone for the bank,” he said.

Shares of HDFC Bank traded nearly 4 per cent higher at Rs 1,041 at around 12.20 pm (IST) on Tuesday, when BSE benchmark Sensex was up 1.64 per cent at 37,534.