HDFC Bank shares fall 2% on reports of internal probe over Rs 45 cr interest payments

Shares of India’s leading private lender HDFC Bank dropped as much as 2% to an intraday low of Rs 761 on Wednesday after a newspaper report stated that the lender’s Audit Committee had ordered a formal “Internal Vigilance Investigation” into payments totalling Rs 45 crore to a PSU disguised as marketing spend.

A report in The Indian Express said the payments were allegedly made to the Maharashtra State Road Development Corporation (MSRDC), a state government agency, just days before former chairman Atanu Chakraborty resigned on March 18.

This order came after an internal audit of the bank’s marketing department, covering the FY25 period, flagged these payments and rated the department’s performance as “unsatisfactory,” the report said.

The Indian Express investigation, based on internal records, found that the payments were intended for Maharashtra State Road Development Corporation as “differential interest”, or interest paid above the specified rate on its deposits. However, instead of being directly credited to MSRDC’s account as interest income, the funds were allegedly routed through the bank’s marketing department and shown as contributions towards a road safety awareness campaign via four local vendors.

Records reviewed during the probe also indicated that the payout was approved during senior-level discussions attended by Sashidhar Jagdishan. According to testimonies by several officials in the internal investigation, Jagdishan participated in calls convened to examine ways for the bank to compensate MSRDC and was part of the decision to route the differential interest through the marketing budget as a one-time arrangement.

HDFC Bank Chief Marketing Officer Ravi Santhanam acknowledged in his testimony during the vigilance probe that the marketing department acted as a “facilitator to camouflage differential interest reimbursement as marketing spend”.
Significantly, the vigilance probe report was sent to the Audit Committee of the Board (ACB) on April 10 and to the Nomination and Remuneration Committee of the Board a week later, the media report said.Vigilance probe details
According to The Indian Express, in 2021, HDFC Bank approached MSRDC, a Maharashtra government infrastructure agency, seeking its savings deposits. The bank was then offering 3.5% interest on savings accounts. MSRDC, sources say, verbally indicated that competing financial institutions were offering 6% or higher and said it would route deposits from a major land acquisition project — anticipated to be worth around Rs 25,000 crore — through HDFC Bank if it received a rate of at least 6.01%.

MSRDC also allegedly sought an upfront fee of Rs 5 crore. The bank declined this demand. However, internal email correspondence reviewed by the vigilance team showed that the bank instead structured a 6.01% return, folding in additional interest above 6% to effectively account for MSRDC’s expectations.

To accommodate this, the bank’s Asset Liability Committee approved a special savings bank interest rate of 4.5%, applicable to certain large deposits, in anticipation that MSRDC would bring in over Rs 10,000 crore. However, when only around Rs 200 crore was received in the initial months, the 4.5% rate window was shut after two months, in April 2022.

According to The Indian Express, the bank had committed to a return of 6.01% but could no longer offer even 4.5% through normal channels. The gap between what regular customers were receiving (3.5%) and what MSRDC had been promised (6.01%) — a differential of 2.51 percentage points — had to be paid out somehow.

The solution allegedly devised by senior management was to route the differential through the marketing department, disguised as sponsorship payments for a road safety awareness campaign run by MSRDC.

Letters formalising the arrangement were signed not by senior executives but by a junior staff member, acting on the instruction of a cluster head and, according to the vigilance report, with verbal approval from a zonal head.

The letters did not specify the tenure of the arrangement or any minimum balance threshold. They were, the report notes, “not vetted by legal or compliance teams” and made no mention of the internally agreed 6.01% return. These “incomplete and poorly drafted” letters subsequently became the basis for MSRDC’s insistence on receiving differential interest payments.

Violations
The vigilance report identifies several serious regulatory and governance breaches.

It flags a violation of the RBI’s Master Directions on interest rates on deposits, which explicitly prohibit banks from offering negotiated returns to individual depositors, according to the media report. By routing the differential interest to MSRDC through vendor payments and effectively compensating a customer at a rate unavailable to others, the bank is alleged to have done what the regulation forbids.

The report also flags a violation of the bank’s own anti-bribery and anti-corruption policy. The policy prohibits payments that could constitute “improper inducement”. Routing interest payments through vendors in the form of marketing expenses, the report said, falls squarely within that prohibition.

HDFC Bank controversy
On March 18, part-time Chairman and independent director Atanu Chakraborty tendered his resignation. In his letter, Chakraborty pointed to certain developments and practices within the bank over the past two years that did not align with his personal values and ethics. “This is the basis of my aforementioned decision,” he wrote.

Since the development, HDFC Bank shares are down nearly 8%. The stock has slipped 23% in 2026.

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