HDFC Bank shares in focus: MD, CFO, Group Head fined in MSRDC case; warning letters issued

HDFC Bank Ltd shares are n focus on Tuesday morning after the its board issued warning letters and monetary penalty of Rs 1 lakh for three senior employees including the Managing Director & CEO, Chief Financial Officer and Group Head – Retail Assets, following an internal review process pertaining to the arrangement with Maharashtra State Road Development Corporation (MSRDC) for garnering deposits in 2017 and 2021.

In a filing to stock exchanges, HDFC Bank said it has concluded the internal review process, where it found that the conduct of the employees involved constituted business overreach rather than any mala fide action, personal enrichment, or improper motive.

"However, keeping in view any potential divergence with the applicable RBI Directions and based on the recommendations of the Special Disciplinary Committee of Independent Directors, the board decided to issue warning letters and monetary penalty of Rs 1 lakh for three senior employees (the Managing Director & CEO, Chief Financial Officer and Group Head – Retail Assets), and warning letters for the remaining employees," HDFC Bank said.

To recall, the Indian Express newspaper had on May 27 published a report alleging that the lender ‘camouflaged’ crores as marketing spend to pay higher interest to the state run firm. As per the report, HDFC Bank had made payments worth Rs 45 crore to MSRDC as higher interest for their deposits and that this was disguised under marketing budgets and sponsorships for a road safety drive.

The report further suggested that the bank did not disclose that an the Audit Committee of the Board (ACB), under the chairmanship of M D Ranganath, had on March 12 ordered a formal “Internal Vigilance Investigation” into payments.

Last week, three US law firms in separate statements said that they would investigate on behalf of HDFC Bank Limited investors, concerning the company’s possible violations of the federal securities laws.

In the past, HDFC Bank's part-time Chairman and Independent Director Atanu Chakraborty resigned on March 18, citing a lack of congruence with personal values and ethics.

"HDFC Bank faced unprecedented management or governance issues recently, including the Chairman’s resignation and niggling middle management (AT 1 bond issue, MSRDC deposits) troubles, thereby delaying the MD’s term extension," Nuvama said on July 19.

"Though a board decision is awaited, we believe the bank possesses decent leadership to withstand any eventuality. Despite which we believe the bank’s re-rating is contingent on resolution of the top management saga, one way or the other," it added.

The HDFC Bank board has directed that the fresh matter be communicated to the RBI.