SEBI’s response on the HDFC shock is too little, too late

When material events are met with silence, confidence erodes. Markets can handle bad news but not the absence of credible information

The recent exit of Atanu Chakraborty from HDFC Bank continues to cast a long shadow over India’s regulatory system. What began as a resignation has now evolved into a test of regulatory responsiveness, transparency, and credibility.

When the chairman of a systemically important bank steps down, citing “happenings and practices in the last two years not in congruence with his values and ethics”, it cannot be treated as routine. It is, by definition, a red flag on governance. Yet, even a week after the resignation on March 17, communicated on the 18th, there is still no clarity on what those “happenings and practices” actually were.

This vacuum of information is shocking. Markets function on the continuous and credible flow of information. When a statement of such gravity is made without substantiation, and regulators fail to respond swiftly, uncertainty fills the gap. That uncertainty distorts prices, creates information asymmetry, triggers speculation, and creates fertile ground for vested interests to exploit the situation.

The nearly 9% intraday fall in HDFC Bank’s stock following the announcement was not an overreaction; it was the market doing what it does best: pricing risk in the absence of clarity. Over Rs 1 lakh crore in market capitalisation was wiped out in minutes not because of known facts but because of unknowns.

It is in such moments that regulators are expected to step in, not with platitudes but with precision. Against this backdrop, the recent public remarks by the SEBI chairman, following a board meeting on the 23rd, must be evaluated. His message to independent directors, that they must be mindful of their responsibilities and the implications of their statements, is nothing more than directionally sound.

Further, timing and context matter. A generic reminder to independent directors, delivered days after a huge market-moving event, does little to address the specific issue at hand. It does not answer the central question that investors, analysts, and stakeholders have been asking since the resignation: what exactly were the concerns that led to such a strong statement by the outgoing HDFC chairman and whether there was any substance behind his words?

Without that clarity, the message, however well-intentioned, comes across as far too little, too late. More importantly, it risks missing the point. This episode is not merely about the responsibilities of independent directors. It is equally, if not more, about the responsibilities of regulators. When ambiguity of this scale emerges in a systemically important institution, regulatory silence is not neutrality; it is a failure to act.

Both SEBI and the RBI have, even till now, not clarified whether they are aware of the “happenings and practices” referred to, whether these were documented or whether any supervisory concerns had been raised over the past two years. If such concerns were known, what action was taken? If they were not known, that raises an entirely different set of questions about oversight. 

There is also a troubling process dimension that cannot be ignored. Complaints and representations, including those from shareholders, were reportedly made immediately to SEBI in relation to this episode. Yet, there has been no formal acknowledgement from SEBI that such complaints have been received or are under examination.

This is not a trivial lapse. Whistleblowers and shareholder complaints are a critical input into the regulatory ecosystem. They often serve as early warning signals, especially in matters of governance. Acknowledging their receipt does not imply guilt or validate the claims; it simply signals that the system is responsive and that concerns are being taken seriously. The failure to even acknowledge such complaints creates the impression of selectivity. It suggests that regulatory attention may not be applied uniformly but instead triggered selectively. That perception, whether accurate or not, is damaging. Consistency is the bedrock of regulatory credibility. If action is swift and visible in some cases but delayed and opaque in others, it raises uncomfortable questions about priorities and processes.

Equally concerning is the possibility that regulators themselves are still in the dark about the substance of the HDFC chairman’s remarks. If that is indeed the case, it underscores a deeper issue: how can markets be expected to function efficiently when even regulators do not have clarity on material developments in a major financial institution even after one week?

Delays of this nature are not costless. They encourage speculation, amplify volatility, and create opportunities for information asymmetry to be exploited. In modern financial markets, where capital moves at speed and perception can shift in minutes, a slow and reactive regulatory approach is not just inadequate; it is counterproductive.

There is also the question of accountability in communication. If the HDFC chairman’s statement was based on substantive concerns, those concerns must be disclosed with sufficient detail to enable informed decision-making. If, on the other hand, the statement was loosely framed or open to misinterpretation, that too must be examined. Market-moving remarks by individuals in positions of authority carry weight. They cannot be vague, and they cannot be left unexplained. In either case, the current state of ambiguity is untenable.

This is why the focus must now shift from general principles to specific answers. What were the “happenings and practices”? Were they raised at the board level? Were they escalated to regulators? What actions, if any, were taken? And crucially, do the disclosures made by the bank meet the standards expected under the regulatory framework? If there was no substance in the market-moving statement of Atanu Chakraborty, what should be the regulatory response? What do the trading patterns immediately prior to this announcement reveal?

This episode is not just about one resignation or one bank. It is about the credibility of India’s disclosure regime and the effectiveness of its regulatory architecture. When material events are met with silence, and when responses are delayed and generic, confidence erodes. Markets can handle bad news. What they cannot handle is the absence of credible information.

If there is one lesson from this episode, it is this: in financial markets, ambiguity is not a neutral state. It is a risk factor. And when that risk is allowed to persist, it does more than move prices; it undermines trust. India’s markets deserve better than delayed reactions and selective acknowledgement. They deserve clarity, consistency, and urgency.

Anything less is, quite simply, not good enough.

DEEPAK SANCHETY