HDFC Bank's board on Monday imposed a penalty of Rs 1 lakh each on managing director & CEO Sashidhar Jagdishan, chief financial officer Srinivasan Vaidyanathan and group head of retail assets Arvind Vohra, and also issued warning letters following an internal review of the bank's deposit arrangements with Maharashtra State Road Development Corporation (MSRDC) in 2017 and 2021, according to Business Today.
Board Action and Penalties
The review found instances of "business overreach" but no evidence of mala fide intent or personal gain, the source reported. The action was based on the recommendations of a special disciplinary committee of independent directors, with other employees involved also receiving warning letters. HDFC Bank said the conduct did not involve "any mala fide action, personal enrichment, or improper motive", but acknowledged potential divergence from RBI directions. It added that the matter will be formally communicated to RBI.
Regulatory Context and Market Reaction
Bankers said while the penalty was nominal, a public, board-backed cash penalty on a sitting MD & CEO, framed as internal discipline rather than a regulator's order, appeared to be unprecedented, according to the source. The penalty comes at a time when RBI has been pushing boards to exercise real oversight. The action comes three months before Jagdishan's term ends in October 2026.
This marks the second major controversy during Jagdishan's tenure as CEO; he had earlier faced an FIR — later quashed by the Bombay High Court — in a dispute involving trustees of Lilavati Hospital, while the bank's non-executive chairman Atanu Chakraborty also resigned earlier this year citing "values and ethics".
HDFC Bank shares closed down Rs 3 at Rs 739 even as the Sensex rose 776 points, according to the source.
The Underlying Issue: Deposit Arrangements with MSRDC
The disclosure comes amid reports that the bank had allegedly routed additional payouts to MSRDC as "marketing expenses" linked to bulk deposits, an arrangement flagged as potentially breaching RBI norms that prohibit incentives for deposit mobilisation, Business Today reported. The bank had earlier denied any wrongdoing, stating its processes were backed by robust internal controls, audit systems and oversight mechanisms.
MSRDC officials had earlier told TOI that such structures are part of an established industry practice. Senior officials said differential payouts are often classified as marketing expenses to avoid setting precedents in deposit pricing, adding that banks also typically pay commissions to intermediaries linked to deposit mobilisation.
The issue draws scrutiny over whether such payments effectively acted as inducements for deposits, which is not permitted under RBI regulations, though banks can offer differential interest rates on bulk deposits.
Implications for Corporate Governance and CFOs
For finance executives and treasury professionals, the HDFC Bank board's action signals an escalating enforcement of governance standards in India's banking sector. The penalty, while modest in amount, underscores the board's willingness to hold top management accountable for potential regulatory deviations — even in the absence of personal gain. CFOs and treasury directors should note that enhanced board oversight, as pushed by RBI, may lead to similar internal disciplinary actions for perceived "business overreach" in deposit mobilisation or other trade finance-related activities. The use of marketing expenses to compensate for deposit costs could face increased scrutiny, potentially raising the cost of compliance for banks and corporate treasuries engaged in bulk deposit arrangements.
| Entity | Role | Penalty |
|---|---|---|
| Sashidhar Jagdishan | MD & CEO | Rs 1 lakh fine + warning letter |
| Srinivasan Vaidyanathan | CFO | Rs 1 lakh fine + warning letter |
| Arvind Vohra | Group Head – Retail Assets | Rs 1 lakh fine + warning letter |
| Other involved employees | – | Warning letters only |
Sources:
