27 August,2026 03:56 PM IST | New Delhi | mid-day online correspondent
Representational Image. File pic.
India's largest private sector lender HDFC Bank is facing a federal securities class-action lawsuit in New York over allegations of violations of federal securities law, according to news agency IANS.
The law suit alleges that the bank orchestrated a covert scheme to illegally inflate interest payouts to a state government agency by disguising them as marketing expenses.
The issue pertains to allegations of HDFC promising Maharashtra State Road Development Corporation (MSRDC) a 6.01 per cent interest rate to attract big its deposits, which constituted a hefty 2.51 per cent markup over the standard 3.5 per cent savings rate offered to regular customers in violation of the RBI norms that explicitly forbid offering negotiated returns to individual depositors, as per IANS.
An internal vigilance probe reportedly concluded that this manoeuvre violated the RBI's Master Directions, as well as HDFC's internal anti-bribery policies prohibiting "improper inducement".
HDFC Bank's board had last month issued warning letters and imposed a monetary penalty of Rs 1 lakh each on Managing Director and Chief Executive Officer Sashidhar Jagdishan, Chief Financial Officer Srinivasan Vaidyanathan and Group Head - Retail Assets Arvind Vohra following the conclusion of an internal review into the bank's deposit arrangements with the MSRDC.
The board had concluded that the conduct of the employees involved amounted to business overreach rather than any mala fide action, personal enrichment or improper motive.
The action followed the findings of a Special Disciplinary Committee of Independent Directors, which examined the bank's arrangements with the state-owned corporation for mobilising deposits in 2017 and 2021.
The complaint, filed in the US District Court for the Southern District of New York by investor Jwalant Natvarlal Soneji, targets the Mumbai-headquartered bank along with Chief Executive Officer Sashidhar Jagdishan and Chief Financial Officer Srinivasan Vaidyanathan.
The lawsuit is brought on behalf of all investors who purchased HDFC's American Depositary Shares (ADS) between July 17, 2023, and May 26, 2026, as per IANS.
The lawsuit claims that between 2023 and 2025, HDFC routed approximately Rs 45 crore, approximately USD 4.7 million, in differential interest to the state firm. Rather than being credited as interest, these funds were allegedly "camouflaged" as marketing spend to sponsor a road safety awareness campaign run by MSRDC.
Thus, the plaintiffs argue that HDFC's SEC filings throughout the class period were materially false. In its Form 20-F annual reports for fiscal years 2024 and 2025, HDFC management assured investors that its "internal control over financial reporting was effective".
The complaint alleges that by burying the interest markup in the marketing budget, HDFC artificially overstated both its operating expenses and its highly scrutinised net interest income.
Alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, the plaintiffs are seeking class certification, unspecified compensatory damages, and a jury trial, claiming the bank's executives acted with reckless disregard for the truth and heavily damaged investors who purchased artificially inflated shares before the regulatory breaches came to light.
While the bank's filings routinely warned that "significant fraud, system failure or calamities would disrupt our revenue-generating activities" and acknowledged past RBI penalties, the complaint suggests these generic warnings failed to disclose the active, high-level deception allegedly taking place internally, according to IANS.
Last month, three US law firms announced separate investigations into whether the bank may have violated federal securities laws alleging the same case.
According to IANS, HDFC Bank, in a statement, has said, "In the United States, these types of shareholder lawsuits are incredibly common after a company experiences a stock drop, and many companies listed in the US routinely defend these lawsuits each year. The Bank believes the lawsuit is without merit and intends to vigorously defend itself."
The bank's shares hit a 52-week low on the Bombay Stock Exchange (BSE) on Thursday, with the stock prices falling to Rs 710 per share. At the closing, the scrip was at Rs 712.00 per share, declining 2.08 per cent from the previous close.
(With inputs from IANS)
