HDFC Bank shares tank as report flags camouflaged payments probe
Mumbai: HDFC Bank shares fell sharply on Wednesday after a report in The Indian Express alleged the lender had made payments of ₹45 crore to the Maharashtra State Road Development Corporation (MSRDC) that were routed as marketing expenses to effectively offer higher returns on deposits.
The report renews scrutiny around governance practices at India’s largest private sector bank and comes months ahead of MD and CEO Sashidhar Jagdishan’s reappointment that is due in October, although experts don’t see this news impacting his prospects.
The bank’s shares closed 2.6% lower at ₹758.65 on the National Stock Exchange, to become one of the worst-performing banking stocks. The selloff also weighed on broader market sentiment, coming at a time when the bank is wtiness to a slower stock performance, foreign investor selling, and post-merger integration challenges. The Nifty Bank index was down 0.4%, while Nifty 50 was almost flat.
The news report, published on Wednesday, claimed that what was not publicly disclosed earlier was that, on 12 March, just six days before former chairman Atanu Chakraborty resigned, the audit committee of the board, chaired by M.D. Ranganath, had ordered a formal internal vigilance investigation into the payments made during FY24-FY25.
Chakraborty had abruptly resigned in March over what he called “certain happenings and practices within the bank” that were allegedly not in “congruence” with his personal values and ethics. Since the resignation on 17 March, HDFC Bank shares have declined as much as 10%.
According to the news report, the payments were allegedly structured as ‘differential interest’ linked to deposits from MSRDC. Instead of being directly booked as interest payouts, the money was said to be routed through the bank’s marketing department and shown as contributions towards a road safety awareness campaign involving local vendors.
Responding to the allegations, HDFC Bank issued a statement defending its governance framework and internal processes. “The bank has robust internal oversight, audit and control processes and systems. All issues are dealt with in accordance with bank’s established norms, and full process is always followed before final determination post any internal review,” it said.
HDFC said it strongly rejects any assumptions of wrongdoing or culpability based on selective material.
CEO Jagdishan reappointment
The newspaper report also claimed that internal records reviewed during the probe pointed to discussions involving senior management, including CEO Jagdishan.
Experts downplayed the impact of the news on Jagdishan’s candidature to continue at HDFC Bank’s helm. “I would think that these are regular banking activities and not necessarily any form of fraudulent activities or any reflection on governance,” said Abizer Diwanji, founder at NeoStrat Advisors.
When asked if this could weigh on the re-appointment of Jagdishan, he said, “I don’t think there will be too much of an issue.”
Vivek Iyer, partner at Grant Thornton echoed this view pointing out that “appointments ensure continuity and stability in leadership which is important from an institutional value creation standpoint”.
“…as always we can expect the regulator and the bank to clarify matters in the days to come,” he added.
HDFC Group veteran Keki Mistry, who was on the HDFC Bank board, was appointed interim part-time chairman for three months at the lender following Chakraborty’s resignation.
The Indian Express report has also sparked broader investor concerns over governance standards in India’s banking sector, especially at a time when HDFC Bank has already been facing pressure from slower stock performance, foreign investor selling and post-merger integration challenges.
The bank’s operating performance continues to show resilience. For the quarter ended March, its loan growth rose 12% year-on-year to ₹3.17 trillion. Deposits continued to outpace credit at ₹3.91 trillion, up over 14%.
Improvement in asset quality, lower provisions and strong loan growth took the lender’s net profit to ₹19,220 crore, up over 9% year-on-year in the March quarter, higher than expectations of ₹19,053 crore profit after tax estimated by Bloomberg.
