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.
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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    5 months ago

    As per their rules vested ESOP have to be exercised within 2 years .

    Thus all the stock vested till October 2018 but not exercised will have to exercised by October 2020.

    The other rule is that on retirement entire grants which have not been vested will immediately be vested on retirement.

    So all ESOP granted after 2018 onwards will also vest in October 2020. These being granted at market prices prevailing during October 2018 to March 2020 MUST presently be mostly underwater.

    No investor would exercise options at a price above the present price of ₹1045.

    So this explanation does not wash !!

    Informed FIIs would not be impressed by such half baked theories.

    It’s also very unlikely that ESOPs worth ₹800 Crs will come up for exercise on his retirement. Remuneration for senior executives is governed and cleared by RBI.

    H Bank needs to come up with a better explanation about this wholesale exit during a sensitive business quarter.
    It looks like jumping ship in troubled waters.


    5 months ago

    Three Private Sector Banks Violated Rules and were Penalized by RBI. Erring Board of Directors of these Companies should Pay the Penalty from their Own Packets. Investors of these Banks cannot be Made to Pay for irregularities Committed by the Board of Directors. I am Babubhai Vaghela from Ahmedabad. Thanks..... https://www.moneylife.in/article/cobrapost-fallout-rbi-penalises-axis-hdfc-icici-banks-for-rule-violations/33102.html


    6 months 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.



    In Reply to soundararajanmk 5 months ago

    Dear Sir, I totally respect your view. However, if we have invested just because of Mr.Puri, this is fundamentally wrong. HDFC is the second biggest bank and does not depend on one person. There is a team. Hence it does not really matter if Mr.Puri sells or not. On a daily basis, the volume is immense, do we question this. In any case he is retiring, so he needs to take his investments in cash. It is his personal call. He could have informed in a press release - this I agree like Vaidya did when he sold IDFC shares.


    6 months 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......



    In Reply to ssk.pab 5 months ago

    fully agree. Never liked the bank. I have an account with them which remained in operative because of the negligence of the team. No one bothers. Wonder how this bank became the second biggest bank when their service is so poor.


    In Reply to cjninan 5 months ago

    You will know how it grew to be the largest private Bank once you know how they tweak the rules and how they frustrate their depositors every step of the way - all the way.


    6 months 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

    6 months 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??


    6 months 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.....

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