HDFC Bank's board has concluded its internal review into the arrangements with the Maharashtra State Road Development Corporation (MSRDC) for garnering deposits in 2017 and 2021. Following the review, the bank has issued warning letters and a monetary penalty of Rs 1 lakh each to three senior employees: the Managing Director & CEO, the Chief Financial Officer, and the Group Head – Retail Assets.
The internal investigation determined that the employees' conduct constituted "business overreach" rather than any malicious intent, personal enrichment, or improper motive. However, considering potential divergences from applicable Reserve Bank of India (RBI) directions, the board, acting on recommendations from a Special Disciplinary Committee of Independent Directors, decided on these disciplinary actions. Warning letters were also issued to other employees involved.
Background of the MSRDC Case
The issue came to light following a report published in May by the Indian Express newspaper, which alleged that HDFC Bank had "camouflaged" crores as marketing expenses to pay higher interest rates to the state-run MSRDC. The report claimed that payments totaling Rs 45 crore were disguised under marketing budgets and sponsorships for a road safety drive, effectively paying MSRDC higher interest for its deposits.
The report also indicated that the bank's Audit Committee of the Board (ACB) had previously ordered a formal "Internal Vigilance Investigation" into these payments in March.
Broader Governance Concerns
This development comes amidst other recent governance-related challenges for HDFC Bank. In March, the bank's part-time Chairman and Independent Director, Atanu Chakraborty, resigned, citing a lack of congruence with his personal values and ethics. Furthermore, last week, three US law firms announced separate investigations on behalf of HDFC Bank Limited investors concerning potential violations of federal securities laws.
Market analysts have noted that HDFC Bank has faced "unprecedented management or governance issues recently," which have contributed to delays in the Managing Director's term extension. The bank's board has now directed that this fresh matter be communicated to the Reserve Bank of India.