Shares of HDFC Bank, India's largest private sector lender, declined by as much as 2% on Wednesday following a newspaper report that alleged the bank made improper payments to a state government agency to attract deposits. At 1:38 PM, the stock was trading at Rs 760.70 on the National Stock Exchange, reflecting a 2.34% drop from the previous close.
Allegations of Improper Payments
According to a Reuters report citing documents and sources, HDFC Bank allegedly paid Rs 45 crore (approximately $4.7 million) to the Maharashtra State Road Development Corporation (MSRDC) to secure large deposits. Banking regulations prohibit lenders from offering differential interest rates to depositors. The report further claimed that these additional payments were routed as marketing expenses to incentivize the agency to place deposits with the bank. It also alleged that CEO Sashidhar Jagdishan was aware of these transactions.
Bank's Response
HDFC Bank has strongly refuted the allegations. A bank spokesperson told Reuters, "The bank maintains strong internal monitoring, auditing, and control mechanisms across its operations. All issues are dealt with in accordance with established norms, and full process is always followed before final determination post any internal review. We strongly reject any assumptions of wrongdoing or culpability based on selective material."
Stock Performance and Governance Concerns
The bank's stock has declined by 9.5% since March 19, when Atanu Chakraborty unexpectedly resigned as part-time chairman, raising fresh concerns about governance standards at the lender. Although Chakraborty did not make direct allegations, he stated that certain practices within the bank were not aligned with his personal ethics and values.
Earlier this month, Reuters reported that legal firms appointed by HDFC Bank to examine the allegations had not yet identified any material procedural lapses. The findings of the review are still awaited. Additionally, the bank has not yet filed an application with the Reserve Bank of India seeking the reappointment of CEO Sashidhar Jagdishan, whose current three-year term is set to end in October.
Conclusion
HDFC Bank continues to face scrutiny over its governance practices, but the lender remains confident in its internal controls and processes. The market will closely watch the outcome of the ongoing review and any further developments regarding the allegations.
