HDFC Bank is under scrutiny following an internal probe into alleged irregular interest payments totaling Rs 45 crore to the Maharashtra State Road Development Corporation (MSRDC). The payments, made just before former chairman Atanu Chakraborty's resignation in March, were flagged during an audit of the bank's marketing department, which rated its performance as unsatisfactory.
The Indian Express investigation revealed that these payments were intended as differential interest for MSRDC's deposits but were routed through the bank's marketing department as contributions to a road safety awareness campaign. Senior management, including Sashidhar Jagdishan, allegedly approved this arrangement during high-level discussions. The marketing department facilitated the payments to camouflage them as marketing expenses.
In 2021, HDFC Bank approached MSRDC for its savings deposits, offering a 3.5% interest rate. However, MSRDC indicated that competing institutions offered 6% or higher. To secure the deposits, the bank structured a 6.01% return, folding in additional interest. The bank's Asset Liability Committee approved a special 4.5% interest rate for large deposits, but this was retracted when only Rs 200 crore was deposited initially.
“The marketing department acted as a 'facilitator to camouflage differential interest reimbursement as marketing spend'.”
Ravi Santhanam, HDFC Bank Chief Marketing Officer
The vigilance report highlights several regulatory breaches, including violations of RBI's Master Directions on interest rates and the bank's anti-bribery policy. The report criticizes the routing of differential interest through vendor payments as marketing expenses, which contravenes regulations.
The vigilance report was sent to the Audit Committee of the Board on April 10 and to the Nomination and Remuneration Committee a week later. This case underscores the importance of adhering to regulatory standards and maintaining transparency in financial dealings.
Background
The scrutiny comes amid increasing regulatory focus on banking practices in India, emphasizing transparency and adherence to RBI guidelines. This case highlights the potential risks of non-compliance and the importance of robust internal controls.
As HDFC Bank navigates this scrutiny, stakeholders will be watching for any regulatory actions or changes in the bank's governance practices. The outcome of this probe could have significant implications for the bank's reputation and regulatory compliance.
