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How investors should read Aditya Puri’s surprise stake sale in HDFC Bank

Puri has been the managing director of the bank since September 1994 which makes him the longest serving MD at a private bank. As law requires bankers to retire at 70, his 26-year tenure at the bank will end in October.

The news of Aditya Puri, managing director of HDFC Bank, selling his major stake in the bank grabbed headlines. As per the FY20 annual report of the bank, Puri held around 77.96 lakh shares of HDFC Bank translating to 0.14 percent stake in the bank as at end-March ’20, of which he sold  74.2 lakh shares for around Rs 840 crore. After the reported transaction, Puri’s holding in HDFC Bank stands reduced to 376,000 shares.

Puri has been the managing director (MD) of the bank since September 1994 which makes him the longest-serving MD at a private bank. As the law requires bankers to retire at 70, his 26-year tenure at the bank will end in October.

Senior management of banks selling the stocks granted to them through employee stock option plans (ESOP) isn’t new. As a matter of fact, instances of insiders selling has risen globally following the dazzling rise in stock prices since March. For instance, Morgan Stanley’s CEO sold out 150,000 shares of US bank valued at around $8 million, a day after the bank reported its second-quarter earnings for CY21. There are many such stances. But in the case of HDFC bank, the quantum and the timing of shares sold by Puri surely stirs curiosity.

Though HDFC Bank’s stock is down 3 percent today so far, it is more in line with the banking index. Hence, the weakness in the bank’s stock today doesn’t seem to be the fallout of Puri’s action. Perhaps, the grim outlook revealed by the Reserve Bank of India’s financial stability report could be the reason for weakness in banking stocks. The RBI projects the gross non-performing (GNPA) ratio of the banking sector to increase to 12.5 percent by March 2021 from 8.5 percent in March 2020 under the base case scenario.

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Why Puri’s exit is a ticklish moment?

Puri has led the most successful and profitable private bank in India. HDFC bank’s market capitalisation was around $200 million, equivalent to Rs 700 crore, on its listing in 1995. As of today, the market cap has zoomed to $83 billion or Rs 595,000 crore, which is around 30 percent compounded annual growth.  That’s a staggering wealth creation over the years.  No doubt, Puri is the highest-paid private bank chief. He received a total remuneration of Rs 18.92 crore in FY20 excluding the value of stock options exercised during the year.


The departure of a successful leader is always a ticklish moment — even more so given that the timing coincides with the pandemic-led economic crisis which will be a litmus test for HDFC Bank and its asset quality.

HDFC’s performance in the latest quarter has been an outlier amidst a dismal scene in the banking sector.

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Source - Moneycontro.com
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