RBI Governor Warns Against Opaque Interest Rate Practices Amid HDFC Bank-MSRDC Row

The Reserve Bank of India has a very clear policy for banks to provide differential interest rates and it is not acceptable if anyone offers differential rates beyond the policy, said Governor Sanjay Malhotra on Friday.

His comment came days after an investigative report by The Indian Express that claimed HDFC Bank offered higher interest rate to the Maharashtra State Road Development Corporation (MSRDC).

The report had claimed that the bank offered an interest of 6.01 percent and paid Rs 45 crore in interest to MSRDC as marketing spends.

However, HBFC Bank has denied any wrongdoing on its part.

During the press conference after the announcement of the Monetary Policy Committee’s decision on policy rates, the RBI Governor was asked about the policy of banks on differential interest rates for particular customers while masking it from others.

Though Malhotra declined to comment about any particular bank, he said, “We have a very clear policy for deposits as to when they (banks) can have differential (interest) rates.”

The Governor explained that banks are allowed to give differential interest based on various criteria, like categories of people, such as senior citizen, and tenure of deposit etc.

“But they have to be transparent at the same time. You have to display them to everyone clearly. If someone is giving any differential rate beyond that is certainly not acceptable,” he said.

According the report by The Indian Express, HDFC Bank made payments of about Rs 45 crore days before the bank’s former chairman, Atanu Chakraborty, resigned on March 18 citing ethical concerns.

Based on the bank’s internal records, The Indian Express reported that HDFC Bank had approached MSRDC in 2021 to deposit its savings with the bank.

The bank initially offered an interest rate of 3.5 percent, which did not convince Maharashtra’s infrastructure agency.

The bank then offered an interest rate of 6.01 percent, and its asset liability committee approved a special savings bank interest rate of 4.5 percent.

While the bank was expecting deposits of around Rs 10,000 crore from MSRDC, the agency deposited only Rs 200 crore in the initial months.

As a result, the 4.5 percent interest window was closed after two months in April 2022.

According to the report, this created a problem because the bank had committed an interest rate of 6.01 percent but could no longer pay even 4.5 percent.

The difference between the regular customer interest rate of 3.5 percent and the promised 6.01 percent to MSRDC — a gap of 2.51 percentage points — was allegedly paid through the marketing department.

The bank reportedly paid around Rs 45 crore as sponsorship payments to MSRDC to cover the difference in interest. According to the report, the vigilance report highlighted the role of MD and CEO Sashidhar Jagdishan, and CMO Srinivasan Vaidyanathan in the case. However, the bank has now denied any wrongdoing in the matter.

However, HDFC Bank has denied any wrongdoing.

“We strongly reject any assumptions of wrongdoing or culpability based on selective material. All issues are dealt with in accordance with established norms, and the full process is always followed before final determination after any internal review,” a bank spokesperson had said after the report by published.