Housing Development Finance Corporation (HDFC) which is headquartered in Mumbai is among the first bank to receive an ‘in principle’ approval from the Reserve Bank of India to set up a bank in private sector, as a part of RBI’s Liberalization of the Indian Banking Industry in1994. But, due to some reason, HDFC was fined by RBI on May 27th 2021. Being a regulator and supervisor of the financial system, Reserve Bank of India (RBI) has always taken timely steps to maintain public confidence in the banking system, protect depositors’ interest and provide cost-effective banking services to the public. Following the same intentions, RBI imposed a monetary penalty of Rs. 10.00 crore on HDFC Bank Limited for contravention of provisions of section 6(2) and section 8 of the Banking Regulation Act, 1949. This was aroused after a whistle blower complaint to RBI regarding irregularities in the auto loan department of HDFC Bank. According to the complaint, the bank allegedly pushed its customers to buy a vehicle tracking device for four years until December 2019, which was in violation of the above-mentioned sections of the Banking Regulations Act, which prohibit banks from engaging in non-financial activities. The charges which were alleged against HDFC Bank for the irregularities were proved beyond doubt during the RBI’s investigations. The allegations about the vehicle loan disbursals were originally made public on social media, and HDFC Bank first denied the allegations. Only after a sustained social media effort by one of the whistle-blowers and subsequent reporting in the mainstream media did it release a statement. These allegations were majorly focused on the misselling of GPS gadgets, as the bank executives were pressuring customers to purchase GPS trackers as part of their auto loans. These executives also told the customers that the loans wouldn’t be approved until they purchase the gadgets. The Trackpoint GPS devices, which are made in Mumbai, cost around Rs 18000 each. Last year in July, the bank had already sacked six executives as allegations were aroused for corruption and breach of corporate governance standards after an internal investigation found that they were involved in corrupt practises. According to the regulator, these steps were not adequate as evidenced by todays’ action. Thus, now the officials in the banks have accepted the RBI order and will abide by it. This incidence shows that good governance standards were harmed at some point, and the actions of a few corrupt personnel are a result of the system's basic faults. The penalty imposed today by the RBI is a clear signal to the bank that it needs to investigate and address deeper flaws in its corporate governance framework. Thank you.
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