HDFC Bank reportedly paid around ₹45 crore to MSRDC as differential interest to attract deposits. After the issue came to light, the bank conducted an internal investigation and found deviations from its guidelines. It then imposed a ₹1 lakh penalty each on three senior executives, including the CEO, CFO and retail head. The RBI has now reportedly asked HDFC Bank to explain its penalty policy and how the ₹1 lakh penalty was decided.
The Reserve Bank of India (RBI) has reportedly asked HDFC Bank to explain why it imposed a penalty of Rs 1 lakh each on three of its senior executives. The bank had taken action against its top officials due to wrongful incentives paid to the Maharashtra State Road Development Corporation (MSRDC) to garner deposits.
According to the Indian Express Report, HDFC Bank’s internal vigilance probe found that payments worth about Rs 45 crore were made to Maharashtra State Road Development Corporation (MSRDC) during FY24 and FY25 as “differential interest”. Differential interest means the extra interest amount paid above the normal or agreed rate. For example, if a bank should pay 6% interest but pays more than that, the extra amount is called differential interest.
When the report got published, HDFC Bank started internal investigation and imposed penalty on its top officials for deviating from Bank guidelines.
RBI Asks About Bank’s Penalty Policy
Now, the RBI has reportedly asked HDFC Bank whether imposing financial penalties on senior executives or employees is a normal practice. The regulator has also sought information on whether the bank has any written policy that allows its board to impose such penalties for wrongdoing.
The RBI has also reportedly asked HDFC Bank to provide details of previous cases in which financial penalties were imposed on senior executives or other employees.
The central bank is also said to have asked how HDFC Bank decided on the penalty amount of Rs 1 lakh for each of the three senior executives.
The case has attracted the regulator’s attention because it is unusual for the board of a company to impose a direct financial penalty on senior executives and key managerial personnel.
According to Banking Experts, this was the first such instance where a fine had been imposed on the CEO, CFO and retail head of HDFC Bank. The unusual nature of the action has attracted the RBI’s attention.
Critics argue that if top officials are at fault, then strict action must be taken.
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