HDFC Bank’s board on Monday issued warning letters and levied a ₹1 lakh penalty on three top officials of the bank, after announcing the completion of an internal review for the Maharashtra State Road Development Corporation (MSRDC) issue.
These officials include managing director and chief executive officer Sashidhar Jagdishan, chief financial officer Srinivasan Vaidyanathan, and Arvind Vohra, group head for retail assets.
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In a filing with the exchanges, the bank said it has also issued warning letters to other employees involved in the case.
The matter pertains to the bank’s arrangement with MSRDC for garnering deposits in 2017 and 2021, as reported by Indian Express on 27 May. The report alleged that HDFC Bank made payments of ₹45 crore to MSRDC—routed as marketing expenses—to effectively offer higher returns on its deposits with the bank.
The newspaper report had also claimed that internal records reviewed during the probe pointed to discussions involving senior management, including Jagdishan. The payments were allegedly structured as ‘differential interest’ linked to deposits from MSRDC, but were routed through the bank’s marketing department and shown as contributions towards a road safety awareness campaign involving local vendors, instead of being directly booked as interest payouts.
{{/usCountry}}The newspaper report had also claimed that internal records reviewed during the probe pointed to discussions involving senior management, including Jagdishan. The payments were allegedly structured as ‘differential interest’ linked to deposits from MSRDC, but were routed through the bank’s marketing department and shown as contributions towards a road safety awareness campaign involving local vendors, instead of being directly booked as interest payouts.
{{/usCountry}}In a meeting on 23 July, the board concluded that the conduct of the employees involved constituted “business overreach” rather than any mala fide action, personal enrichment, or improper motive.
However, keeping in view “any potential divergence with the applicable RBI Directions and based on the recommendations of the Special Disciplinary Committee of Independent Directors”, it decided to issue warning letters and monetary penalty.
When the issue first came to light, HDFC Bank had said that it has robust internal oversight, audit and control processes and systems, and that full process is always followed before final determination post any internal review. It also rejected any assumptions of wrongdoing or culpability “based on selective material”.
“The only way to close these issues is to actually impose some level of penalty. This is not such a massive control breach, and nobody really has defaulted the bank or committed a fraud,” said Abizer Diwanji, Founder - NeoStrat Advisors LLP. “It was a commercial negotiation, which has been implemented in a rather crude manner.”
HDFC Bank notified the exchanges post market hours on Monday. Shares of the lender ended 0.4% lower at ₹739.55 on the NSE.
The board’s decision appears to be an attempt to draw a line between commercial overreach and dishonest intent, said Soumya Singh, co-founding partner, Thistle&Law, adding that the absence of mala fide intent, however, does not automatically eliminate accountability from a governance perspective.