New Delhi, Sept. 1 -- HDFC Bank's news of a leadership reset briefly brought investor cheer on view that a new leader could help address concerns over alleged governance issues and regulatory lapses. Its shares rose nearly 2% intraday on Monday, the first trading day after the announcement of Sashidhar Jagdishan not seeking an extension as chief executive beyond his 26 October term. The stock then reversed course to close 1.5% lower, reflecting deeper concerns over India's largest private-sector lender.

The one big challenge for Jagdishan's successor will be to deliver on a merger whose promised benefits have been slow to show up.

Three years after mortgage giant HDFC Ltd was folded into the bank, margins and returns remain under pressu...