The HDFC Bank Board may have hoped to draw a line under the Maharashtra State Road Development Corporation (MSRDC) deposit episode by imposing a ₹1 lakh penalty on three of its senior-most executives. Instead, the decision has raised bigger questions about accountability and corporate governance at India’s largest private sector bank.

On July 27, HDFC Bank said its Board had accepted the findings of a Special Disciplinary Committee of Independent Directors, which examined the manner in which deposits were mobilised from MSRDC between 2017 and 2021. The Board imposed a ₹1 lakh penalty each on Managing Director and Chief Executive Officer Sashidhar Jagdishan, Chief Financial Officer Srinivasan Vaidyanathan and Arvind Vohra, Group Head of Retail Assets. The bank also issued warning letters to other employees involved in the matter.

According to the bank’s disclosures, HDFC Bank paid ₹45 crore to MSRDC as marketing expenses in connection with the deposits. The arrangement has attracted scrutiny over whether it effectively enabled the public sector entity to receive a higher overall return on its deposits through an indirect mechanism.

The committee concluded that the conduct amounted to “business overreach” rather than any mala fide action, personal enrichment or improper motive. The bank’s disclosure also referred to a potential divergence with applicable RBI directions.

That makes the Board’s response difficult to reconcile with the seriousness of the issues identified. A ₹1 lakh penalty on the bank’s top management for conduct that warranted an independent disciplinary inquiry appears more symbolic than substantive. Even accepting the committee’s conclusion that there was no malicious intent or personal gain, the episode raises legitimate questions about governance standards, internal controls and oversight at one of India’s most systemically important financial institutions.

Nor does the episode exist in a vacuum.

Earlier this year, former part-time chairman Atanu Chakraborty resigned, saying certain happenings and practices within the bank were not in congruence with his personal values and ethics. While he did not publicly elaborate on the specific issues that prompted his decision, the resignation added to the scrutiny surrounding the bank’s governance.

Separately, the Dubai Financial Services Authority has barred HDFC Bank’s Dubai International Financial Centre branch from soliciting, onboarding or servicing new clients over compliance deficiencies. The restriction, effective September 26, remains in force until amended or revoked.

The bank has also terminated three employees, including senior executives, following an internal investigation into the alleged mis-selling of Additional Tier-1 (AT1) bonds to non-resident Indian clients through its Dubai operations.

Meanwhile, three US-based shareholder law firms have announced investigations into whether HDFC Bank may have violated US federal securities laws or failed to adequately disclose material information to investors. Those announcements followed developments that affected the bank’s American Depositary Receipts (ADRs), which are listed on the New York Stock Exchange.

The larger question now is not the ₹1 lakh penalty itself. It is whether the Reserve Bank of India is satisfied that HDFC Bank’s governance framework remains strong enough to merit another term for its chief executive. The RBI has historically taken a firm approach to governance standards in the banking sector. Against the backdrop of recent governance-related controversies, overseas regulatory action and continuing shareholder scrutiny, the regulator’s decision on Jagdishan’s reappointment—his current term ends on October 26, 2026—will inevitably attract close attention.

The Board also owes shareholders and depositors a more convincing explanation. An internal inquiry followed by modest monetary penalties and warning letters may satisfy the disciplinary process, but it is unlikely to settle broader concerns about governance and accountability.

Corporate governance is tested not when everything is going well, but when difficult decisions have to be taken against those at the very top. HDFC Bank’s own disclosure acknowledges “business overreach” and refers to a potential divergence from applicable RBI directions, even as it finds no mala fide intent or personal enrichment. Investors are therefore entitled to ask whether the Board’s response is proportionate to the seriousness of the issues it has itself identified.