HDFC Bank faces federal securities class-action lawsuit; stock hits 52-week low

Indias largest private sector lender HDFC Bank is facing a federal securities classaction lawsuit in New York over allegations of violations of federal securities law according to news agency IANSThe 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 expensesThe issue pertains to allegations of HDFC promising Maharashtra State Road Development Corporation MSRDC a 601 per cent interest rate to attract big its deposits which constituted a hefty 251 per cent markup over the standard 35 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 IANSAn internal vigilance probe reportedly concluded that this manoeuvre violated the RBIrsquos Master Directions as well as HDFCs internal antibribery policies prohibiting improper inducementBankrsquos board had penalised the top executivesHDFC Bankrsquos 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 banks deposit arrangements with the MSRDCThe board had concluded that the conduct of the employees involved amounted to business overreach rather than any mala fide action personal enrichment or improper motiveThe action followed the findings of a Special Disciplinary Committee of Independent Directors which examined the banks arrangements with the stateowned corporation for mobilising deposits in 2017 and 2021What does the lawsuit stateThe complaint filed in the US District Court for the Southern District of New York by investor Jwalant Natvarlal Soneji targets the Mumbaiheadquartered bank along with Chief Executive Officer Sashidhar Jagdishan and Chief Financial Officer Srinivasan VaidyanathanThe lawsuit is brought on behalf of all investors who purchased HDFCs American Depositary Shares ADS between July 17 2023 and May 26 2026 as per IANSThe lawsuit claims that between 2023 and 2025 HDFC routed approximately Rs 45 crore approximately USD 47 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 MSRDCThus the plaintiffs argue that HDFCs SEC filings throughout the class period were materially false In its Form 20F annual reports for fiscal years 2024 and 2025 HDFC management assured investors that its internal control over financial reporting was effectiveThe 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 incomeAlleging violations of Sections 10b and 20a of the Securities Exchange Act of 1934 the plaintiffs are seeking class certification unspecified compensatory damages and a jury trial claiming the banks executives acted with reckless disregard for the truth and heavily damaged investors who purchased artificially inflated shares before the regulatory breaches came to lightWhile the banks filings routinely warned that significant fraud system failure or calamities would disrupt our revenuegenerating activities and acknowledged past RBI penalties the complaint suggests these generic warnings failed to disclose the active highlevel deception allegedly taking place internally according to IANSSimilar case in USLast month three US law firms announced separate investigations into whether the bank may have violated federal securities laws alleging the same caseAccording 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 itselfThe bankrsquos shares hit a 52week 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 71200per share declining 208 per cent from the previous closeWith inputs from IANS