HDFC Bank‘s board has imposed an HDFC Bank penalty of Rs 1 lakh each on managing director and CEO Sashidhar Jagdishan and chief financial officer Srinivasan Vaidyanathan, following an internal review of the bank’s deposit arrangements with the Maharashtra State Road Development Corporation (MSRDC) in 2017 and 2021, according to a report by The Times of India. A similar Rs 1 lakh penalty was also imposed on Arvind Vohra, the bank’s group head of retail assets, with warning letters issued to the three executives and other employees involved.
The review found instances of “business overreach” in the bank’s dealings with MSRDC, a Maharashtra government-owned corporation, but found no evidence of mala fide intent or personal gain by those involved. The action was based on recommendations from a special disciplinary committee made up of independent directors.
Banking sector observers said that while the monetary penalty itself was nominal, a public, board-approved cash penalty on a sitting MD and CEO , framed as an internal disciplinary measure rather than a regulatory order , appeared to be unprecedented in the Indian banking sector.
The disclosure comes at a time when the Reserve Bank of India (RBI) has been pushing bank boards to exercise stronger oversight over management conduct. The penalty was announced roughly three months before Jagdishan’s term as CEO is due to end in October this year.
This marks the second major controversy of Jagdishan’s tenure as CEO. He had earlier faced an FIR, later quashed by the Bombay High Court, in a dispute involving trustees of Lilavati Hospital. Separately, HDFC Bank’s non-executive chairman, Atanu Chakraborty, resigned earlier this year, citing “values and ethics.”
HDFC Bank said the conduct under review did not involve “any mala fide action, personal enrichment, or improper motive,” but acknowledged a potential divergence from RBI directions. The bank added that the matter would be formally communicated to the RBI.
HDFC Bank shares closed down Rs 3 at Rs 739 on the day of the disclosure, even as the BSE Sensex rose 776 points.
The disclosure follows earlier reports that the bank had allegedly routed additional payouts to MSRDC under the classification of “marketing expenses” linked to bulk deposits , an arrangement that had been flagged as potentially breaching RBI norms prohibiting incentives for deposit mobilisation. HDFC Bank had previously denied any wrongdoing, stating that its processes were backed by robust internal controls, audit systems and oversight mechanisms.
MSRDC officials had earlier said that such payout structures are part of established industry practice. Senior officials said differential payouts are often classified as marketing expenses to avoid setting precedents in deposit pricing, adding that banks also typically pay commissions to intermediaries involved in deposit mobilisation.
The core issue under scrutiny is whether such payments effectively functioned as inducements for deposits, which is not permitted under RBI regulations, even though banks are allowed to offer differential interest rates on bulk deposits. The distinction between permissible differential pricing and impermissible inducements has become a key point of scrutiny in the case, given that the payouts to MSRDC were specifically classified as marketing expenses rather than being reflected directly in the deposit rate offered. This classification is central to the review, as it determines whether the arrangement falls within accepted banking practice or breaches the RBI’s stated norms on deposit mobilisation.
The core issue under scrutiny is whether such payments effectively functioned as inducements for deposits, which is not permitted under RBI regulations, even though banks are allowed to offer differential interest rates on bulk deposits.
HDFC Bank has said it will formally communicate the internal review’s findings and the disciplinary action taken to the RBI. It remains unclear whether the RBI has independently reviewed the MSRDC deposit arrangements or whether any regulatory action is expected. As with several ongoing corporate governance developments in India’s banking sector , including scrutiny of penalties and fines imposed on major firms, such as the recent €890 million EU fine against Google , further clarity is likely to depend on subsequent regulatory or company disclosures.
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