The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs 10 crore on HDFC Bank Limited for violation of certain rules, the central bank said on May 28.
This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers, the RBI said.
An examination of documents in the matter of marketing and sale of third-party non-financial products to the bank’s customers, arising from a whistle blower complaint to RBI regarding irregularities in the auto loan portfolio of the bank, revealed contravention of the aforesaid provisions of the Act and the regulatory directions, the RBI said.
HDFC Bank penalty: What is RBI's message to India's largest private lender?
In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed for contravention of the provisions of the Act/directions, the RBI said.
After considering the bank’s reply to the show cause notice, oral submissions made during the personal hearing and examination of further clarifications/documents furnished by the bank, RBI came to the conclusion that the aforesaid charge of contravention of provisions of the Act was substantiated and warranted imposition of monetary penalty, the RBI said.
The irregularities in the auto loan portfolio pertains to the charges including bank’s executives forcing the borrowers to buy GPS devices bundled with the auto loans and even insisting that loans will not be sanctioned unless they buy these devices.
The devices, manufactured by a Mumbai firm, Trackpoint GPS, cost about Rs 18,000 a piece.
The allegations first surfaced on social media. The bank responded to the charges with the statement only after a sustained social media campaign by one of the whistleblowers against the alleged irregularities and subsequent reports in the mainstream media.
The misconduct by the bank officials was acknowledged by former CEO Aditya Puri in the bank’s AGM when he said an internal probe was conducted against a few erring employees and appropriate action was taken.
In July last year, the bank had sacked six executives over allegations of corruption and breach of corporate governance standards. The private sector lender fired six senior and mid-level officials after an internal investigation found that they were involved in corrupt practices.
"We had received some whistle-blowing complaints, internal enquiries carried out in the matter on the complaints received has not brought out any conflict of interest issue nor does it have any bearing on our loan portfolio," HDFC Bank’s former chief Puri said at the company's annual general meeting (AGM) on July 18.
"Enquiry did bring out another aspect related to personal misconduct exhibited by a set of individuals for which appropriate disciplinary actions have been taken," Puri added.
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