New Delhi, August 27: HDFC Bank, India’s largest private sector bank, is facing a federal class-action lawsuit in New York. The lawsuit alleges that the bank improperly inflated interest payments by disguising additional amounts given to a state government agency as marketing expenses under a covert scheme.
Investor Jvalant Natwarlal Soneji filed the lawsuit in the U.S. District Court for the Southern District of New York. The suit names HDFC Bank’s CEO Shashidhar Jagdishan and CFO Srinivasan Vaidyanathan as co-defendants. It represents all investors who purchased HDFC Bank’s American Depository Shares (ADS) between July 17, 2023, and May 26, 2026.
The lawsuit claims that HDFC Bank promised a 6.01% interest rate to the Maharashtra State Road Development Corporation (MSRDC) to attract large deposits. This rate was 2.51% higher than the standard savings rate of 3.5% offered to regular customers, allegedly violating RBI regulations.
RBI banking rules explicitly prohibit offering different returns to individual depositors based on negotiations, prompting senior management to reportedly devise an alternative method.
According to the lawsuit, between 2023 and 2025, HDFC Bank paid approximately ₹450 million in additional interest to this state agency. Instead of being recorded as interest, this amount was reportedly classified as marketing expenses and used to sponsor road safety awareness campaigns run by MSRDC. Allegedly, these payments were made through third-party vendors.
An internal vigilance investigation at the bank concluded that this approach violated RBI’s master directives and HDFC’s internal anti-corruption policies.
The plaintiffs argue that during the class period, HDFC’s reports filed with the U.S. Securities and Exchange Commission (SEC) contained materially misleading information. In its Form 20-F annual reports for fiscal years 2024 and 2025, HDFC Bank management assured investors that its “internal controls over financial reporting were effective.”
The complaint alleges that by concealing the additional interest payments within the marketing budget, HDFC Bank artificially inflated both its operating expenses and closely monitored net interest income (NII).
The bank’s reports regularly warned that “significant fraud, system failures, or disasters could disrupt our revenue-generating activities.”
The reports also referenced previous penalties imposed by the RBI. However, the complaint states that these general warnings failed to disclose the allegedly high-level active fraud occurring within the bank.
The situation escalated on March 18, 2026, when HDFC’s chairman, Atanu Chakraborty, unexpectedly resigned. He cited “certain events and practices” within the bank that did not align with his personal values and ethics. His abrupt departure caused investor panic, leading to a 7.28% drop in HDFC Bank’s shares, which closed at $26.62 amid unusually heavy trading.
The full impact of the case emerged on May 27, 2026, when The Indian Express published a report revealing an internal investigation into payments made to MSRDC. The report indicated that over ten senior officials were responsible, including CEO Jagdishan, who allegedly gave verbal approval for these concealed payments during high-level discussions. Following this revelation, HDFC shares fell an additional 4.1%, closing at $23.78.
The plaintiffs have accused HDFC Bank of violating sections 10(b) and 20(b) of the Securities Exchange Act of 1934. They seek to certify the lawsuit as a class action, unspecified damages, and a jury trial. They claim that bank officials acted with recklessness regarding the truth, causing significant losses to investors who purchased HDFC shares at artificially inflated prices before the regulatory violations came to light.
HDFC Bank issued a statement asserting, “Such lawsuits by shareholders in the U.S. are extremely common following a decline in a company’s stock. Many companies listed in the U.S. regularly defend against such lawsuits. The bank believes this lawsuit is baseless and will vigorously defend itself.”
HDFC Bank’s shares closed down 1.75% at ₹714.45 on Thursday.
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