HDFC Bank's American Depositary Receipts (ADRs) fell 0.52% to $23.11 as of 9:45 a.m. EDT after one of India's largest private sector lenders found itself at the centre of a corporate governance controversy linked to its dealings with the Maharashtra State Road Development Corporation (MSRDC).
The development follows the bank's announcement on July 27 that an internal investigation into the matter concluded that certain senior employees had engaged in "business overreach" rather than fraud, corruption or personal misconduct.
Following the findings, HDFC Bank issued warning letters and imposed a monetary penalty of Rs 1 lakh each on Managing Director and CEO Sashidhar Jagdishan, Chief Financial Officer Srinivasan Vaidyanathan and Group Head of Retail Assets Arvind Vohra. Other employees involved in the matter have also received warning letters.
The controversy relates to HDFC Bank's deposit relationship with the Maharashtra State Road Development Corporation (MSRDC), a Maharashtra government undertaking that manages key infrastructure projects, including the Mumbai-Pune Expressway.
The issue dates back to 2017 and 2021, when the bank allegedly offered preferential returns on large deposits placed by MSRDC through arrangements that may not have complied with Reserve Bank of India (RBI) guidelines governing deposit pricing.
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Media reports subsequently alleged that nearly Rs 45 crore paid to MSRDC was booked under the bank's marketing budget instead of being reflected as interest paid on deposits. Critics argued that such accounting treatment could understate the actual cost of acquiring deposits.
While HDFC Bank has not admitted to violating RBI regulations, the allegations prompted an internal review by the bank's board and have attracted scrutiny from investors, analysts and regulators.
To investigate the matter, HDFC Bank's board constituted a Special Disciplinary Committee comprising independent directors.
The committee examined whether employees had breached internal policies or RBI norms while securing deposits from MSRDC.
After completing its review, the committee concluded that the executives had displayed "business overreach" by exceeding acceptable business practices in pursuit of deposits. However, it found no evidence of personal financial gain, corruption, fraud or malicious intent.
Based on these findings, the board accepted the committee's recommendations and imposed disciplinary action in the form of warning letters and a Rs 1 lakh penalty on each of the three senior executives.
Importantly, the board stopped short of accusing any executive of fraud, personal enrichment or intentional regulatory violations.
Although the financial penalties are symbolic, the episode has emerged as one of the most closely watched corporate governance issues in India's banking sector.
The controversy has reportedly delayed the RBI's decision on Jagdishan's reappointment as Managing Director and CEO while also raising broader questions about competitive practices adopted by banks to attract large government deposits.
The matter has also drawn international attention because HDFC Bank's ADRs are listed on the New York Stock Exchange.
Several US law firms have launched investigations into whether the bank adequately disclosed the alleged MSRDC-related payments and whether investors were misled by the accounting treatment associated with those transactions.
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