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HDFC Bank has imposed a monetary penalty of Rs 1 lakh each on its Managing Director and CEO Sashidhar Jagdishan, Chief Financial Officer Srinivasan Vaidyanathan, and Group Head of Retail Assets Arvind Vohra following an internal review into the bank’s deposit arrangements with the Maharashtra State Road Development Corporation (MSRDC).
The disciplinary action follows the recommendations of a Special Disciplinary Committee of Independent Directors, which examined transactions related to MSRDC deposits in 2017 and 2021. While the committee found instances of “business overreach”, it said there was no evidence of mala fide intent, personal enrichment or improper motive.
Why did HDFC Bank penalise its top executives?
According to a stock exchange filing, HDFC Bank’s board, at its meeting on July 23, accepted the committee’s findings and decided to issue warning letters and impose a monetary penalty of Rs 1 lakh each on the three senior executives.
The bank said the action was taken after considering the committee’s recommendations and the possibility of divergence from applicable Reserve Bank of India (RBI) directions. It also issued warning letters to other employees involved in the matter and said the findings would be communicated to the RBI.
“The conduct of the employees involved constituted business overreach rather than any mala fide action, personal enrichment, or improper motive,” the bank said in its filing.
What was the review about?
The internal review centred on HDFC Bank’s arrangements with MSRDC for mobilising deposits in 2017 and 2021.
The matter came under public scrutiny in May after reports alleged that around Rs 45 crore had been routed through the bank’s marketing department in connection with securing deposits from the state-owned agency. The payments were reportedly classified as marketing expenses, raising questions over whether they could have breached RBI rules that prohibit banks from offering inducements for deposit mobilisation.
At the time, HDFC Bank denied any wrongdoing, saying its internal oversight, audit and control mechanisms were robust and that all matters were handled according to established procedures.
No evidence of personal gain
Despite taking disciplinary action, HDFC Bank stressed that the review did not uncover fraud or personal misconduct by the executives.
Instead, the board concluded that the issue amounted to “business overreach” and not deliberate wrongdoing. The bank said there was no evidence that any employee had acted with dishonest intent or received personal financial benefit.
The lender also reiterated that its governance processes had functioned as intended and that the board had acted on the recommendations of an independent committee.
Why is this significant?
While the financial penalty is nominal, governance experts say it is unusual for the board of a major private sector bank to publicly penalise its serving CEO and other top executives through an internal disciplinary process.
The development also comes as the RBI has been pushing bank boards to exercise stronger oversight over governance and compliance issues.
The action assumes added significance as Jagdishan’s current term as CEO is due to end in October this year.
Comes amid heightened governance scrutiny
The disciplinary action is the latest governance-related challenge for HDFC Bank.
In March, the bank’s former non-executive chairman Atanu Chakraborty resigned, saying certain developments within the bank were not aligned with his personal values and ethics. The bank later said an independent legal review found no evidence supporting those concerns.
Separately, Jagdishan had earlier faced an FIR in a dispute involving the trustees of Mumbai’s Lilavati Hospital. The Bombay High Court later quashed the FIR.
