RBI Levies Rs 10 Crore Fine On HDFC Bank
Pedestrian walk past an HDFC Bank Ltd. branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

RBI Levies Rs 10 Crore Fine On HDFC Bank

The Reserve Bank of India has levied a fine of Rs 10 crore on HDFC Bank Ltd. for irregularities in the bank’s auto loan portfolio.

The banking regulator, in a release on Friday, said it had received a whistle-blower complaint regarding these irregularities. After reviewing the documents in the matter of marketing and sale of third-party non-financial products in HDFC Bank’s auto loan division, the regulator found the bank had breached provisions of the Banking Regulation Act.

The RBI cited a breach of two provisions—Section 6(2) and Section 8.

Under Section 6(2) a bank isn’t allowed to enter into any business, which doesn’t fit into the list of activities allowed. Under Section 8, a bank cannot enter into any buying, selling or bartering of goods, except in connection with any security given or held by it.

“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.

The banking regulator considered the written reply to the show cause notice and also reviewed the oral submissions made during the personal hearing it held. It came to the conclusion that HDFC Bank had breached the provisions of the Banking Regulation Act and that its actions warranted a monetary penalty.

In July 2020, Bloomberg reported that HDFC Bank has conducted a probe into allegations of improper lending practices and conflicts of interests in its vehicle-financing operation involving the unit’s former head Ashok Khanna.

Khanna, who headed the secured vehicle loans business, had been denied a term extension by the bank. The bank had investigated the allegations after Khanna’s exit and found personal misconduct by some of its employees. It had fired six employees as part of this investigation, the Economic Times had reported in July last year.

The regulator had sought details of the enquiry as well, Bloomberg reported.

This is the second time in recent months that the regulator has taken enforcement action against India’s largest private bank.

In December, the RBI barred HDFC Bank from issuing fresh credit cards and also stopped it from launching any new digital initiatives. This was in response to the multiple digital outages at the bank, which caused considerable inconvenience to customers. Currently the RBI is reviewing a third party audit report on HDFC Bank’s IT infrastructure improvement, which will aid in deciding on removing the strictures.

Also read: HDFC Bank CEO Says Retail Delinquencies May Rise In The Near Term

Corrects an earlier version which erroneously claimed that this was the largest monetary penalty levied by RBI

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