MUMBAI: HDFC Bank’s board on Monday imposed a penalty of Rs 1 lakh each on managing director & CEO Sashidhar Jagdishan, chief financial officer Srinivasan Vaidyanathan and group head of retail assets Arvind Vohra, and also issued warning letters following an internal review of the bank’s deposit arrangements with Maharashtra State Road Development Corporation in 2017 and 2021.The review found instances of “business overreach” but no evidence of mala fide intent or personal gain. The action was based on the recommendations of a special disciplinary committee of independent directors, with other employees involved also receiving warning letters.Bankers said while the penalty was nominal, a public, board-backed cash penalty on a sitting MD & CEO, framed as internal discipline rather than a regulator’s order, appeared to be unprecedented. The penalty comes at a time when RBI has been pushing boards to exercise real oversight. The action comes three months before Jagadishan’s term ends in October 26.
HDFC: No mala fide, personal enrichment by executives
The penalty comes at a time when RBI has been pushing boards to exercise real oversight. The action comes three months before Jagadishan’s term ends in Oct this year.This marks the second major controversy during Jagadishan’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, while the bank’s non-executive chairman Atanu Chakraborty also resigned earlier this year citing “values and ethics”.HDFC Bank said the conduct did not involve “any mala fide action, personal enrichment, or improper motive”, but acknowledged potential divergence from RBI directions. It added that the matter will be formally communicated to RBI. HDFC Bank shares closed down Rs 3 at Rs 739 even as sensex rose 776 points.The disclosure comes amid reports that the bank had allegedly routed additional payouts to MSRDC as “marketing expenses” linked to bulk deposits, an arrangement flagged as potentially breaching RBI norms that prohibit incentives for deposit mobilisation.The bank had earlier denied any wrongdoing, stating its processes were backed by robust internal controls, audit systems and oversight mechanisms.MSRDC officials had earlier told TOI that such structures are part of an 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 linked to deposit mobilisation.The issue draws scrutiny over whether such payments effectively acted as inducements for deposits, which is not permitted under RBI regulations, though banks can offer differential interest rates on bulk deposits.
