Is HDFC Bank 'above board'?

 HDFC BANK may not qualify for 'More Equal Status'

I wrote a blog 'Too big are more equals'@ on 24th March 2026, when the then Chairman of HDFC Bank Ltd. (the bank) resigned citing 'certain happenings and practices within the bank are not in congruence with my personal values and ethics'. I captioned thus, as the Chairman did not elaborate and the board of directors described the entire event as 'baffling', though they had the right to convene a board meeting and invite the aggrieved board member to explain, before accepting his resignation. The regulator also came out with a statement "HDFC Bank is a Domestic Systemically Important Bank (D-SIB) with sound financials, professionally run board and competent management team". However, the investors remained in the dark.

I wrote another blog 'engagement of legal firms by HDFC Bank'# on  24th April 2026, as I was 'baffled' to understand the rationale of conducting a 'review' by the external legal firms, regarding the resignation of the ex-Chairman. When the audited results were published, the mention of an approval by the board for conducting a 'review' by the external legal firms for the above episode, gave the clarity that the 'exercise' is mainly intended to get a 'legal certificate' on corporate governance.

Fresh reports in a newspaper: On 27th May 2026, The Indian Express published its 'investigation' captioning 'HDFC Bank 'camouflaged' crores as marketing spend to pay higher interest to state firm'. The report alleged that six days prior to the resignation of the then Chairman, the Audit Committee of the Board (ACB) ordered a 'formal Internal Vigilance Investigation' into payments totalling Rs.45 cr. made to the Maharashtra State Road Development Corporation (MSRDC), a state government agency, during FY 2024 and FY 2025 (the order was based on an internal audit of the bank's marketing department). These payments were meant for MSRDC as 'differential interest' i.e. interest over and above the specified rate on savings bank deposits, but routed through the bank's marketing department, disguised as contribution to a road safety awareness campaign through four local vendors. The vigilance report, per the news item, says the bank structured a 6.01% return to the deposits (anticipated to be in the range of Rs.25,000 cr.) received from MSRDC (as against the bank's savings deposit rate of 3.5% at that time) and the differential of 2.51% was paid as sponsorship payments for road safety awareness campaign run by MSRDC. As per the news item - "the bank's vigilance report findings indicated that the CEO and CFO were present in the call/senior-level discussions, where the overall 6.01% return structure for MSRDC was verbally agreed upon - without any written approval or documentation". 

The Bank's response: In response to the e-mail from NSE to the above newspaper report, the bank stated "In line with the highest corporate governance standards of the Bank, the Internal Audit Function conduct reviews, identifies and present its observations from time to time. As such the observations of Internal Audit Functions are comprehensively addressed by the Bank and that applies to the matter in question. This matter does not have a material impact on the financial statements and the internal controls at the Bank are robust. Accordingly, in our view, no requirement of making a disclosure under Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is triggered".

My views: Even if the anticipated amount of Rs.25000 crores from MSRDC were actually received for a full financial year, the differential interest of 2.51% (Difference between 6.01%, the return agreed and the SB interest at 3.50%) per annum works out to Rs.627.5 cr. only, as against the net profit of the bank for FY26 at Rs.74,670 cr. So, the payment totalling Rs.45 cr. allegedly made through the marketing department as marketing expenses instead of accounting them as interest payments is not 'financially material'. Up to this level, the arguments are right. But the allegation in the said news paper report was 'the vigilance findings indicated that the CEO and CFO were present in the call/senior-level discussions, where the overall 6.01% return structure for MSRDC was verbally agreed upon - without any written approval or documentation', which centered around  non-compliance of corporate governance. Sadly, this was not addressed by the bank in its response. Here a decision circumventing the bank's rules and regulations is taken in a call/meeting, in which the MD & CEO and CFO were present. Corporate Governance practice insist that the 'end' goal has to be reached through 'fair' means. Is this not a corporate governance violation? How the bank can claim that its corporate governance practices are robust? What was the response of  the Board and the ACB in particular? No one will find me at fault if I say that the Senior Management appear to run the Bank, as the action proposed by the ACB/Board to such findings (that hit the corporate governance practiced by the Senior Management), are not furnished in the bank's response to the queries raised by the Stock Exchanges.

When I wrote my first blog, I felt that the difference of opinion between few individuals in the Board, on certain important issues,  might have resulted in the resignation of the then Chairman. I do not subscribe to that view any longer. HDFC Bank, the largest private sector bank in the country, with a business of Rs.43.65 lac cr. and a D-SIB as per RBI classification, is financially sound, no doubt. But whether it has a Professionally run Board and competent Management Team? I have my reservations. I also feel that HDFC Bank may not qualify to be shortlisted in the group of "Some are more equals".

Regards

V.Viswanathan
CGM Retd. e-SBT

9th June 2026

@ https://viswoice.blogspot.com/2026/03/too-big-are-more-equals.html

# https://viswoice.blogspot.com/2026/04/engagement-of-legal-firms-by-hdfc bank.html