Top News

An internal vigilance investigation at HDFC Bank has triggered fresh questions around governance practices at India’s largest private sector lender, after internal records reviewed by The Indian Express allegedly revealed that crores of rupees were routed through the bank’s marketing department to compensate a state government agency with higher returns on deposits.

The controversy surfaced shortly after former HDFC Bank chairman Atanu Chakraborty resigned on March 18, citing “certain happenings and practices within the bank” that were not in “congruence” with his personal values and ethics.

At the time, the resignation did not immediately raise major concerns within banking circles.

However, according to The Indian Express investigation, significant developments had already unfolded inside the bank days earlier.

Internal Probe Began Before Chairman’s Exit

On March 12, the Audit Committee of the Board (ACB), chaired by M D Ranganath, reportedly ordered a formal “Internal Vigilance Investigation” into payments worth around Rs 45 crore made to the Maharashtra State Road Development Corporation (MSRDC) during FY2024 and FY2025.

The move followed an internal audit of the bank’s marketing department, which reportedly flagged irregularities and rated the department’s performance as “unsatisfactory”.

According to the report, the payments were allegedly made to compensate MSRDC with “differential interest”, effectively returns higher than the officially permitted rate on deposits.

Instead of crediting the amount directly as interest, the payments were allegedly routed through the bank’s marketing department and disguised as spending linked to a road safety awareness campaign.

The Alleged 6.01 Per Cent Arrangement

The investigation traces the origins of the arrangement back to 2021, when HDFC Bank approached MSRDC seeking large deposits linked to a land acquisition project expected to involve around Rs 25,000 crore.

At the time, HDFC Bank’s savings account interest rate stood at 3.5 per cent.

According to sources cited in the report, MSRDC allegedly indicated that competing institutions were offering returns of 6 per cent or more and suggested that deposits would be routed through HDFC Bank only if the effective return reached at least 6.01 per cent.

The report further states that while an alleged upfront demand of Rs 5 crore was declined, the bank internally worked out a structure that would effectively provide the 6.01 per cent return.

To facilitate this, the bank’s Asset Liability Committee approved a temporary special savings account interest rate of 4.5 per cent for certain large deposits.

However, when anticipated deposits did not materialise at the expected scale, the arrangement reportedly became difficult to sustain.

How the Marketing Route Was Allegedly Used

According to the vigilance findings cited by The Indian Express, senior officials allegedly devised an alternative mechanism to bridge the gap between the regular savings rate and the promised return.

The alleged solution: route the differential amount through marketing spends linked to MSRDC’s road safety awareness campaigns.

Between 2023 and 2025, HDFC Bank’s marketing department reportedly made payments aggregating nearly Rs 39.7 crore towards the campaign.

The internal audit reportedly noted that the payments were not processed through the bank’s Corporate Social Responsibility division, which would typically handle awareness initiatives of this nature.

Investigators also found that supporting documentation for the campaign appeared weak.

In one instance highlighted in the report, a single photograph was allegedly attached across three invoices totalling nearly Rs 9 crore.

The audit further stated that event confirmation certificates, mandatory under the bank’s own processes, were missing before payments were released.

Senior Executives Named In Probe

The vigilance investigation reportedly concluded that more than 10 senior officials bore responsibility for the arrangement.

Those named included Managing Director and CEO Sashidhar Jagdishan, CFO Srinivasan Vaidyanathan and Chief Marketing Officer Ravi Santhanam.

According to testimonies recorded during the probe, Jagdishan allegedly participated in senior-level discussions where the overall 6.01 per cent return structure for MSRDC was verbally agreed upon.

The report states that no formal written approval or governance framework existed for the arrangement.

CFO Srinivasan Vaidyanathan was also reportedly identified as being present during discussions on how the remaining interest differential could be reimbursed through the marketing route.

‘Camouflage’ Allegation and Marketing Department’s Role

One of the most striking observations in the investigation came from the testimony of Chief Marketing Officer Ravi Santhanam.

According to the report, Santhanam acknowledged that the marketing department had acted as a “facilitator to camouflage differential interest reimbursement as marketing spend”.

He further stated that only a small portion of the spending was directed towards actual marketing activity in order to give the payments the appearance of legitimate campaign expenditure.

The marketing department’s response to the audit reportedly admitted that the arrangement had originated from the business team and that additional marketing budget had been specifically allocated by the finance department for this purpose.

RBI Rules and Governance Questions

The vigilance report reportedly identified several possible regulatory and governance breaches.

Most significantly, it allegedly flagged a violation of the RBI’s Master Directions governing interest rates on deposits, which prohibit negotiated returns for individual depositors.

According to the findings, routing payments through vendors rather than crediting them directly as interest effectively bypassed these restrictions.

The report also reportedly flagged possible breaches of the bank’s anti-bribery and anti-corruption policy.

Sources familiar with the inquiry told The Indian Express that the arrangement not only raised questions under banking regulations but also highlighted serious ethical concerns.

RBI and HDFC Bank Yet To Respond

At the time of publication, neither the RBI nor HDFC Bank had responded to detailed questionnaires sent by The Indian Express.

MSRDC reportedly stated that its Vice Chairman and Managing Director was unavailable because of urgent meetings.

Meanwhile, the vigilance report was reportedly submitted to the Audit Committee of the Board on April 10 and later forwarded to the Nomination and Remuneration Committee.

The developments have now placed one of India’s largest private banks under intense scrutiny at a time when governance standards in the financial sector remain under close regulatory and investor watch.