RBI Asks HDFC Bank to Explain ₹1 Lakh Fine on Top Executives in MSRDC Case

The Reserve Bank of India (RBI) has asked HDFC Bank to explain the basis for imposing a ₹1 lakh monetary penalty on its top three executives in connection with the alleged payment of wrongful incentives to the Maharashtra State Road Development Corporation (MSRDC) to secure deposits, according to a Moneycontrol report.

The regulator has sought clarification on whether imposing financial penalties on senior executives is a standard practice at the bank or its board, and whether such action is backed by a written policy.

The RBI has also reportedly sought details of previous instances where similar penalties were imposed on senior executives or employees, along with an explanation of how the ₹1 lakh penalty amount was determined.

RBI Seeks Clarification on Internal Action

The monetary penalty was imposed after HDFC Bank's Special Disciplinary Committee of Independent Directors reviewed the bank's arrangements with MSRDC for mobilising deposits during 2017 and 2021.

The committee's findings led the bank's board to issue warning letters and a ₹1 lakh penalty each to Managing Director and CEO, Chief Financial Officer, and the Group Head of Retail Assets. Other employees involved received warning letters.

In a stock exchange filing dated July 27, HDFC Bank said its board concluded that the conduct of the employees amounted to "business overreach" and not any mala fide act, personal gain or improper motive. However, the board decided to take disciplinary action, citing the possibility of divergence from applicable RBI directions and based on the committee's recommendations.

Rare Move Draws Regulator's Attention

The report said the RBI's interest stems from the unusual nature of the action, as it is considered a rare case of a company's board imposing monetary penalties on senior management, including the CEO and CFO.

A former RBI deputy governor, quoted by the publication without being named, said this was the first instance of a financial penalty being imposed on the bank's CEO, CFO and retail head, making it significant from the regulator's perspective.

The report added that the central bank is independently examining the MSRDC matter as part of its supervisory process. Although the issue would ordinarily fall under the next supervisory cycle beginning after April 2027, the RBI is said to have advanced its review due to the sensitivity of the matter.

Separate Supervisory Review Underway

According to the report, the RBI's supervisory review is separate from the internal inquiry conducted by HDFC Bank's Special Disciplinary Committee.

A senior official familiar with the process told the publication that the regulator wanted to complete its assessment before the bank's board considers the reappointment of the Managing Director and CEO, whose tenure may soon come up for renewal.

The report also noted that, despite the ongoing supervisory review, HDFC Bank's board is expected to proceed with its recommendations regarding the appointment or reappointment of the CEO.

According to an earlier report by The Indian Express, cited by Moneycontrol, HDFC Bank allegedly paid Rs 45 crore to MSRDC to attract large deposits, with the payments reportedly recorded as marketing expenditure. The report also alleged that the bank's CEO was aware of the payments.