Specialist in Indian Banking and Economic Research

Hemindra Hazari

Is a Securities & Exchange Board of India (SEBI) registered research analyst with over 25 years experience in the Indian capital markets with a specialization in banking and economy research and has managerial experience of establishing profitable equities business, leading and mentoring analysts.  He has worked with prominent foreign and domestic capital market firms such as UBS, Societe Generale, HSBC, ASK Raymond James  and Karvy Stock  Broking and is a regular guest on business media channels and is respected for his non-consensus view on stocks and the market.

HDFC Bank and KMB Carefully Select Independent Directors - For Their Lack of Banking Knowledge

Deafening Silence from Media and Sell-Side on HDFC Bank’s ‘Processing Fee’ Scandal

The Mystery of Why Rejected Applicants Paid HDFC Bank ‘Processing Fees’

HDFC Bank’s Digital Irresponsibility: RBI’s Novel Penalty Hits Where It Hurts

Time to Junk the Less Savoury Parts of the Legacy of HDFC Bank’s Iconic CEO

Selective Disclosure of Sensitive Information? HDFC Bank’s Conference Call on Its Digital Outages

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

Nearly a year after <a href="https://www.smartkarma.com/entities/axis-bank-ltd" target="_blank" data-smartkarma-citation="entities:768:1" rel="noopener">Axis Bank Ltd (AXSB IN)</a><a href="https://hemindrahazari.com/2020/01/09/axis-bank-hollowing-out-the-crucial-role-of-the-cro/" target="_blank" rel="noopener">truncated</a> the responsibilities of its Chief Risk Officer (CRO) by transferring corporate credit risk to the role of the newly created Chief Credit Officer (CCO) who reported only to the CEO, <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN) </a>has <a href="https://archives.nseindia.com/corporate/HDFCBANK_14122020145644_SEIntimationCRO.pdf" target="_blank" rel="noopener">decided</a>  to go a step further. It has transferred corporate and retail credit risk to a similarly newly created role of a CCO (no business targets), who will report only to the CEO, and transferred the earlier CRO to the CCO post. HDFC Bank also <a href="https://twitter.com/MDahariya/status/1341597883225825285?s=20" target="_blank" rel="noopener">shifted</a> individuals in the CRO handling credit risk to the CCO, and made the latter accountable for credit decisions.  The rationale provided by HDFC Bank is that in its future credit expansion it wants greater underwriting focus and accountability and therefore wants an experienced individual to accept responsibility for the CCO post who will report to the CEO.In Indian banks credit risk is the major risk and in HDFC Bank credit risk assets constitute 83% of total risk weighted assets. In this organisational restructuring, the CRO will only be left with non-credit risk management and secondary credit risk-related functions like stress testing the credit portfolio, concentration risk and determining limits (such as sector, group, company, geography).  For some inexplicable reason, even the <a href="https://www.linkedin.com/in/sameer-ratolikar-13b1725/?originalSubdomain=in" target="_blank" rel="noopener">Chief Information Risk Officer</a>  has been made to report to the CCO. Therefore the CRO’s role in HDFC Bank has been drastically downsized.The new CRO at HDFC Bank maintains his prior designation of senior executive vice-president, while the earlier CRO had the designation of group head. This change has downgraded the position of the CRO within the senior management. As HDFC Bank’s own disclosures reveal, while the earlier CRO’s experience, age, and remuneration was similar to the others in the senior management, the new CRO is the junior-most in all these parameters.  For most practical purposes, the erstwhile CRO post has been re-named “CCO”, with one crucial difference: he does not report to the Board’s Risk Management Committee, but only to the CEO. It appears that creating the new designation, and maintaining a stripped-down CRO post as well, merely serves to confuse the public and distract from the nature of this disturbing change.The Basle Committee and the Reserve Bank of India (RBI) have been trying to enhance the role of the CRO (<a href="https://www.bis.org/bcbs/publ/d328.pdf" target="_blank" rel="noopener">here</a> and <a href="https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10948" target="_blank" rel="noopener">here</a>) and insulate the CRO from business and even pressure from the CEO, by making the post report to the risk management committee of the board with a dotted line reporting to the CEO. It is perplexing that, at the same time, two prominent private sector banks in India, with full support of their boards of directors, are undermining the foundations of the CRO by taking away (in Axis Bank only corporate credit risk) the core credit risk function.

Nearly a year after Axis Bank Ltd (AXSB IN)truncated the responsibilities of its Chief Risk Officer (CRO) by transferring corporate credit risk to the role of the newly created Chief Credit Officer (CCO) who reported only to the CEO, HDFC Bank (HDFCB IN) has decided  to go a step further. It has transferred corporate and retail credit risk to a similarly newly created role of a CCO (no business targets), who will report only to the CEO, and transferred the earlier CRO to the CCO post. HDFC Bank also shifted individuals in the CRO handling credit risk to the CCO, and made the latter accountable for credit decisions.  The rationale provided by HDFC Bank is that in its future credit expansion it wants greater underwriting focus and accountability and therefore wants an experienced individual to accept responsibility for the CCO post who will report to the CEO.In Indian banks credit risk is the major risk and in HDFC Bank credit risk assets constitute 83% of total risk weighted assets. In this organisational restructuring, the CRO will only be left with non-credit risk management and secondary credit risk-related functions like stress testing the credit portfolio, concentration risk and determining limits (such as sector, group, company, geography).  For some inexplicable reason, even the Chief Information Risk Officer  has been made to report to the CCO. Therefore the CRO’s role in HDFC Bank has been drastically downsized.The new CRO at HDFC Bank maintains his prior designation of senior executive vice-president, while the earlier CRO had the designation of group head. This change has downgraded the position of the CRO within the senior management. As HDFC Bank’s own disclosures reveal, while the earlier CRO’s experience, age, and remuneration was similar to the others in the senior management, the new CRO is the junior-most in all these parameters.  For most practical purposes, the erstwhile CRO post has been re-named “CCO”, with one crucial difference: he does not report to the Board’s Risk Management Committee, but only to the CEO. It appears that creating the new designation, and maintaining a stripped-down CRO post as well, merely serves to confuse the public and distract from the nature of this disturbing change.The Basle Committee and the Reserve Bank of India (RBI) have been trying to enhance the role of the CRO (here and here) and insulate the CRO from business and even pressure from the CEO, by making the post report to the risk management committee of the board with a dotted line reporting to the CEO. It is perplexing that, at the same time, two prominent private sector banks in India, with full support of their boards of directors, are undermining the foundations of the CRO by taking away (in Axis Bank only corporate credit risk) the core credit risk function.  

HDFC Bank: Honey, I Shrunk the Chief Risk Officer