HDFC Bank's public notice on June 17 about refunding GPS device commission to auto loan customers is following a Reserve Bank of India (RBI) directive to the bank to that effect, according to two sources familiar with the development.
"The RBI directed the bank to refund the GPS device fee to auto loan customers after conducting an examination of the issue. Subsequently, the bank has complied with this directive," one of the sources quoted above said. Both declined to be named.
The bank, in a newspaper advertisement, on June 17 said it would refund the GPS device commission to auto loan customers who had availed of such device as part of the auto loan funding during the period financial year 2013-14 to financial year 2019-20. The bank asked the customers to contact within a period of 30 days.
The refund will be credited to the customer's repayment bank account as registered with the bank, HDFC Bank said in a notice published in the Times of India news paper on June 17.
This brings an end to a controversy surrounding alleged misselling of GPS devices to HDFC Bank's auto loan customers during the term of former CEO, Aditya Puri.
On May 28, the RBI imposed a monetary penalty of Rs 10 crore on HDFC Bank for violation of certain rules and said his action is based on deficiencies in regulatory compliance.
This was after 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.
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.
Auto loan division controversy
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 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 2020, 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.