Why Did Aditya Puri Sell Shares of HDFC Bank Worth Over Rs840 crore?

Updated on 4 August 2020 at 7.10pm to include details of Mr Puri stake sale from a conference all with analysts...

Last week, Aditya Puri, managing director (MD) and chief executive of HDFC Bank sold nearly 95% of his stake valued at Rs842.7 crore. Nothing new in this. In fact, several times, top executives of banks have sold stocks granted to them through the employee stock option plans (ESOP). However, according to market buzz, Mr Puri may have sold the stake to fund ESOPs in HDFC Bank. According to market sources, his ESOPs will amount to several times the size of his stake sale.

Mr Puri held 0.14% stake or about 7.8 million shares in HDFC Bank. Out of this, he sold 7.42 million shares through open market between 21st and 23 July 2020. Through the stake sale he has apparently raised more than Rs840 crore as per market reports.

Speaking with CNBCTV18, Macquarie Capital Securities’ banking analyst Suresh Ganapathy says, “One can definitely question the timing of (Aditya Puri’s) exit. A lot of people have argued that why can’t he sell after the moratorium period expires but we believe that a part of the selling could be attributed to the requirement for funds for the ESOPs. We have double-checked on this matter. Last time also the part of the selling was done for funding the ESOPs. Having said that, the guy who has built in Rs6 trillion of market capitalisation (for the bank) definitely deserves a couple of $100 million. Even Jeff Bezos of Amazon keeps selling shares time and again. So, I do not think there is too much negative for HDFC Bank from this particular aspect.”
 

Mr Puri has been MD of HDFC Bank since September 1994, which makes him the longest-serving MD at a private bank in India.

In FY2020, Mr Puri was granted 6,81,600 shares under ESOP. During the same period, he also sold shares worth Rs200 crore in the bank's subsidiary HDB Financial Services.

 
 

As per the annual report of HDFC Bank for FY2020, Mr Puri exercised stock options worth Rs161.56 crore. Besides this, he received an annual salary of Rs18.92 crore during the fiscal year.

Regulatory filing by HDFC Bank shows that between October 2015 and July 2020, Mr Puri had exercised about 3.42 million stock options at an acquisition cost of Rs158. Including his last week stock sale, Mr Puri during this period has sold around 9.65 million shares for about Rs1,165 crore.

 
 

Mr Puri is set to retire from HDFC Bank in October this year and the lender is searching for his successor.

As per details of ESOP scheme shared by HDFC Bank with the US SEC, "In case the employee, including a director to whom the options are granted retires, or vacates his/ her office upon reaching the age of supper annuation as per the bank's rules or upon expiry of any extension thereof or on account of any directives, statutory provisions, clarifications or guidelines of the RBI, then in such case all granted options shall forthwith vest in such employee. However, the employee shall exercise the options within a period of six months from the date of such retirement / vacating of the office, failing which the said options shall lapse."

"On exercise of the options the employee shall forthwith pay to the bank the price which includes the grant price plus the fringe benefit tax (FBT) amount or any other amount which the bank has an option to recover from its past and present employees. The bank shall be entitled to recover the price by debiting the salary, saving, other account of the employees with the bank. The employee shall issue necessary authorisations to the bank in this regard," HDFC Bank says in its regulatory filing.

Information shared by HDFC Bank shows that during FY2020, many employees exercised their ESOPs at a price ranging from Rs340 to Rs1,229 per share. Maximum number of shares at 8.17 crore were exercised at an average price of Rs1,139.82.

 
As on 31 March 2020, HDFC Bank had about 14.29 crore options in force while during the fiscal year, it collected Rs2,818.45 crore from the options exercised.
 
UPDATE
Speaking with analysts during a conference call on 3 August 2020, Mr Puri mentioned that he was being advised by a couple of top executives from the bank, including the new MD and CEO designate Sashidhar Jagdishan.

Responding to a query on his stake sale, Mr Puri told the analyst that Sashidhar Jagdishan will give detailed answer.

The new MD and CEO designate says, "Couple of us have been advising Mr Puri on this. We started in December. When retirement happens there is the scheme under which a lot of options, would vest at the time of retirement. So, you need to provide a fair amount of liquidity for this. (In Mr Puri's case) this was going to be a substantial amount of liquidity, which needed to be there to exercise these options. We thought of selling some portion around March-April to provide liquidity needed around October. But due to the COVID situation, we saw the market step back by almost 30-40%. So we waited for some time for market correction. But then instead of waiting any further, we sold some stake in February...Almost about 70% of what he is going to get back in to acquiring these particular options has got exercised in October when he retires."

"(Mr Puri) is a manager of managers but, I would say he have not looked at his own financial wealth well... We saw a higher proportion of equity risks in that and for a person who is reaching 70 years of age, we need to advise him on lessening the proportion of equity... that is why the balance 30% he is going to de-risk and put it in more, lesser riskier financial assets," Sashidhar Jagdishan says.

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    COMMENTS

    soundararajanmk

    3 days ago

    Allotment of Rs. 160 crores worth of HDFC Bank shares to its MD under ESOP during 2020 is very much on the higher side, while the profits are the result of public money, though through its efficient management. Selling of huge number of shares by the MD of Bank, while relinquishing charge creates a fear in the minds of share holders, customers and FD holders as to the status of the Bank, after he leaves the Bank. He should have issued a statement in this regard clearing doubts that would arise in the minds of public and investors at large, in this regard. Mr. Adithya Puri has failed in his bounden duty to the Bank which he nurtured for so long a period.

    ssk.pab

    7 days ago

    Aditya Puri is perhaps being regarded as Poster Boy of Banking; but who knows what rules he has tweaked and how many stone walls he has created for his depositors in the process of running his Bank. Much of it later-in a different Forum and on a different Platform......

    suketu

    1 week ago

    HDFC Bank wl continue to grow same way without Mr Puri.However the next HDFC Bank is Kotak from stock point of view.

    Prasad DN

    1 week ago

    The question is not, why Mr.Puri sold his ESOP,


    now, who is next, can he be the same as Mr.Puri ?????

    Or better??

    s5rwav

    1 week ago

    HDFC Bank Limited Must Publish Advertisement in Newspapers Inviting Applications for the Successor of Mr Aditya Puri to Avoid Secret Hand Picking of his Successor. I am Babubhai Vaghela from Ahmedabad an Investor of HDFC Bank Limited. Thanks.....

    SBI Shareholder Writes to FM Nirmala Sitharaman Seeking Complete Information on Loan Write-offs
    Pune-based activist Vivek Velankar has requested finance minister (FM) Nirmala Sitharaman to direct State Bank of India (SBI) to share detailed information on loan write-offs, efforts taken for recovery, properties attached against these bad debts and manpower allocation done by the lender over the past eight years. 
     
    Mr Velankar, who is a shareholder of SBI, in a letter to the FM says "I request your kind attention to this serious offence by SBI and request you to kindly instruct SBI to put forth transparently all information about the efforts bank has made on recovery of written off accounts of big defaulters above Rs100 crore. In fact, I request you to compel all other nationalised banks also to publish this information proactively on their websites in larger public interest."
     
    As reported by Moneylife, using his rights as shareholder, Mr Velankar had found out that SBI had written off of Rs1,23,432 crore, and then recovered just over 7% or Rs8,969 crore over the past eight financial years. (Read: SBI Writes Off Rs1.23 Lakh Crore of Bad Debt, Recovers Paltry Rs8,969 Crore in 8 Years!)
     
    In his latest letter, Mr Velankar, who is also president of Pune-based Sajag Nagrik Manch, told FM Nirmala Sitharaman that, "There were lot of heated arguments in the country a couple of months ago on written off loans of big accounts. That time it was clarified by your department that technical write off does not mean waiving off loans and efforts are on for recovery of these written off loans and due to stringent laws brought in by your department the process of recovery has become more effective and faster."
     
    Earlier, Mr Velankar had tried obtaining this information under Right to Information (RTI) Act, but SBI denied it claiming that collating this information would be a waste of its resources. Being a shareholder of SBI, he then asked for this information as question for the annual general meeting (AGM). While he did not get a chance to ask his question during SBI's annual general meeting (AGM), the Bank shared this information which is quite shocking. "This information also exposes how the bank writes off loans of 100s of crores of rupees of large defaulters while denying waiver of simple interest on loans for common customers," Mr Velankar had told Moneylife.
     
    Here is the information sought by Mr Velankar with help from the finance minister...
     
    1. You (SBI) have given me list of accounts which have been written off technically; I would like to know when case was filed in NCLT for each of this account.
     
    2. What efforts Bank has made to recover the written off amounts for year 2012-13 to 2016-17.
     
    3. How much property is attached for each of the written off account and what is the status of sale of those properties. 
     
    4. Provide me manpower allocation done by bank for recovery of written off accounts grade wise. (Is there separate cell formed for this purpose and if yes constitution of the cell as far as manpower allocation is concerned?)
     
    5. Amount of expenses incurred by bank from 2012-13 till 2019-20 year-wise for recovery of written off loans. (This should include legal as well as staff salary and other expenses). 
     
    The Bank’s reply to Mr Velankar shows that during the eight years from FY12-13 to FY19-20, SBI has 'technically/prudentially written off’ a massive sum of Rs1.23 lakh crore from its books, but manged to recover only 7% or Rs8,969 crore in this period. This makes a mockery of the aggressive claims by a string of high-profile government spokesperson and economic advisors that a ‘technical’ write-off does not stop the recovery process. 
     
    When a bad debt is written down, some of the bad debt value remains as an asset because the bank expects to recover it. However, as SBI has shown, most of the times, there is no recovery or negligible recovery for the amounts written off. 
     
    The fact is that once a loan turns bad in India, it is almost impossible to recover anything because it has already been ever-greened for several years, a former chairman of a bank had told Moneylife.
     
     Earlier in April, the Reserve Bank of India (RBI) had said that Indian banks have technically written off a staggering amount of Rs68,607 crore due from 50 top wilful defaulters, including absconding diamantaire Mehul Choksi. RBI had revealed this information in reply to an RTI filed by Saket Gokhale.
     
    RBI said that this amount (Rs68,607 crore) comprising outstanding and the amounts technically or prudentially written off till 30 September 2019. 
     
    Mr Velankar, in his letter, says, "I even wrote to them (SBI) to at least convey me whether this information is not available or bank cannot provide me this information but till date no response what so ever is received by me. This raises doubts in minds of common citizen like me about bank’s intentions. 
     
    "It seems that in spite of efforts made by your department to make stringent provisions for recovery of written off loans bank is not acting on this with some fraudulent motives. In fact, this information should have been available on bank website but in spite of asking also this information is not disclosed clearly means that either bank is not intentionally taking much efforts to recover these written off loans or doing only selective recovery. This seems to be intentional move by the bank to let down the efforts done by your department on this issue," the activist says in his letter to finance minister Nirmala Sitharaman.
     
    You may also want to read…
     
     
     
     
     
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    COMMENTS

    kd.paranjpe

    3 days ago

    I do not know why banks are lax when they deal with large defaulters. One reason given is that all these defaulters who take loans to never intend to return have no real assets in their accounts that could be attached as collateral. Some of these people have fictitious assets made with the express purpose of defrauding the banks. Then there is the usual association with those in power and who control who should get how much loan. The politicians do not serve as guarantors for fear of later default and media exposure. Our Institutions seem to be lacking upright men at the helm.
    A direct effect of the lax recovery is the need to increase the provision to account for write offs without a dip in the bank profits. This only means lower deposit interest rates for the depositors and higher interest for new loan customers. Such an arrangement is most public unfriendly.

    s5rwav

    3 days ago

    Why CM Maharashtra, Mumbai Not Declare Mr Rajnish Kumar Chairman SBI as Anti National for Gigantic Financial Frauds and Open Brazen Loot of Public Money of Poor Indians? I am Babubhai Vaghela from Ahmedabad. Thanks....

    s5rwav

    1 week ago

    Suo Moto Empowered Judges sitting at High Courts and Supreme Court of India should Take Cognizance and Direct the State Bank of India Headed by Rajnish Kumar to Disclose the Larger Public Interest Information about Public Money.

    rajoluramam

    1 week ago

    Now investment in YES bank was eroded 30% with in a short period. It will not be far off, 100% investment in YES bank will be eroded. Writting off bad loans is a regular habit of public sector banks. These banks never seriously pursue the recoveries. Why to bother about recoveries, when easiest method of
    " writting off" is available. Those who had sanctioned these written off loans might have retired long back or reached the heavenly abode.
    To get a huge loan from public sector bank, What one reqires is a strong recommendation or benami partnership from a high level politician. Who recommend Baba Ramdev?

    Meenal Mamdani

    1 week ago

    Hats off to Mr. Velankar for filing this RTI request.

    Even though he will have to spend months to get at the bottom of this, the positive is that the pols are worried that someone is looking over their shoulder and will nail them sooner or later. Hopefully that puts fear in their hearts and therefore fewer malfeasance.

    Newme

    1 week ago

    Pickles Nimmy is an arrogant lady. I don\'t think she will even read the letter.

    likipa1993

    1 week ago

    Dear Vivek Velankar,
    If you are reading this, Banks and especially like SBI which are too big to fail will never disclose such information. For this you have to understand how a bank loan scam works.
    Bank loans these big are sanctioned in tandem with a cut of bank executives and in no way these executives will let the blade fall on them.

    In a successful scam you need to share the cut not only with the loan approvers/executives but you also need multiple scapegoats and fake companies to make it successful. Unsecured loans are definately scam but there are ways to scam a secured loan too.

    Get a loan sanctioned for 100 crores, pay your cut to the bank executives, pay your cut to the fake company and directors, let the fake firm buy equipment or materials with the loan amount, bank will try to recover the amount from the fake firm, make your directors move to a new country (some countries require paltry sum for changing citizenship). Bank can sell your paltry equipment for pennies and you can do your business legitimately.
    Now this is a basic foundation of scam. You can involve many fake firms and use your creativity to scam any bank. But always remember you need the executive or the loan approvers in your pocket to successfully execute that.

    muralidhard2002

    1 week ago

    I dont think that SBI Officers (AGMs/DGMs, etc.) will leave the defaulters just like that! I have heard an Officer has been given memo. for failing to report an`irregular' loan of Rs.90,000/- (Not NPA) given to a TG (Transgender). (being a very big amount). He was lamenting that he had received a memo. first time in his service. So just 'Imagine' the fate of the `culprits' who have sanctioned `small loans' to poor men like Malya, Chocksi, etc. May be the officer `did not fall in line' with the `Honest Group'!

    rs235m

    1 week ago

    Loan takers and defaulters fill pockets of politicians and bank executives to write off loans It is very funny that in one case reason for write off was that the address of defaulter was not known to the bank or the addressee has left that place. DHFL company asks for PAN , signature across photo ,ID address proof etc while taking deposits from public and default while repayment.
    There are hoodlums in corporate world.

    Indian State Banks To Require More Capital as Safeguard against Stress: Fitch
    The plans of public sector banks (PSBs) in India to raise capital from private sources will not be sufficient to mitigate anticipated risks unless supplemented with additional capital support from the State, says Fitch Ratings. 
     
    Several large State-run banks have recently announced plans to raise a total of around $6 billion in fresh equity from the capital market. 
     
    According to Fitch, state-run banks are already facing significant execution risks in raising equity due to depressed stock market valuations and weak investor interest. A recent news report citing the government's plan to reduce the number of state banks to five from 12 while selling majority stakes in several others, including Bank of India to raise resources, could add to uncertainties. 
     
    It says, "A reduction in the state's majority shareholding in some of its banks may dent depositor confidence and potentially lead to negative rating action as their long-term ratings are anchored to state support. It may also reduce investor appetite at a time when government capital support has stuttered, and an acceleration in new coronavirus cases is hampering a meaningful economic recovery and increasing risks for banks' balance sheets." 
     
    "We believe the proposed stake sales will be very challenging in the current economic climate and in light of the potential capital shortfalls we calculate at the state banks in our stress test. It could also require amendments to the banking company acts, which currently prescribe a minimum government shareholding of 51% for the state banks, thus adding to execution risk," Fitch added.
     
    The ratings agency says it expects PSBs in India will remain reliant on fresh equity injections from the state as the proposed capital amounts, if raised fully, will likely add only around 100-150 basis points (bps) to State banks' existing common equity tier-1 (CET1) ratios. It says, "Under our high stress scenario, this may provide some interim capital relief, testing the banks' ability to raise fresh equity on their own, but will not be enough to stave off heightened solvency risks. It would also increase the prospect of further regulatory forbearance." 
     
    Fitch says it believes recapitalisation requirements will be substantially higher once pandemic-related asset quality deterioration starts manifesting on bank balance sheets when regulatory forbearance ends, in which case raising equity from the market will be more difficult. 
     
    "Recent comments by the central bank governor highlighting the need for recapitalisation further underscores this imperative, emphasising the risks that deteriorating asset quality will pose to state banks' limited capital and earnings buffers. This is consistent with the outcome of our stress test on individual banks, whereby the state banks have significantly larger capital shortfalls than their private counterparts," the ratings agency added.
     
    Indian private banks' recapitalisation requirements are comparatively more modest than their proposed fresh capital raising, with ICICI Bank Ltd and Axis Bank Ltd likely to add around 200bps-245bps to their existing CET1 ratios. This, according to Fitch, will further widen the capital gap between private and state banks, which, on average, is about 350bps. 
     
    Fitch says it believes ICICI Bank and Axis Bank—which have proposed plans to raise $2 billion each—will likely be encouraged by recent investor appetite for the almost $1 billion and $1.9 billion raised by Kotak Mahindra Bank and Yes Bank, respectively. Yes Bank was also recently supported through an injection of capital by the largest State-owned bank, State Bank of India (SBI), it added.
     
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