HDFC Bank, one of India’s leading banks, has taken internal corrective measures after discovering that some employees were creating temporary deposit accounts to artificially inflate quarterly deposit numbers. This practice involved using unutilized working capital limits of corporate clients to fund these temporary accounts, which were then reversed within a few days after the quarter closed. The purpose of this tactic was to improve the bank’s financial metrics, such as its liquidity coverage ratio, net interest income, and loan-to-deposit ratio, which are closely watched by regulators and investors.

The employees involved in this practice would request corporate clients to transfer unused funds from their cash credit and overdraft facilities to their bank accounts just before the quarter ended. These funds were then reversed after the quarter closed, and the clients were compensated with incentives, such as minimal interest charges. This practice raises ethical concerns as it misrepresents the bank’s actual growth and financial strength.

The use of temporary deposits can have a positive impact on key financial metrics, but it is a short-term solution that can mislead stakeholders about the bank’s true financial health. Repeated use of such tactics can attract regulatory scrutiny, damage the bank’s credibility, and result in penalties or operational restrictions.

HDFC Bank has taken a strict stance against this practice, warning employees of disciplinary action for non-compliance. The bank has initiated disciplinary measures against those involved and is conducting sensitization programs across branches to reinforce ethical standards and regulatory compliance. A bank spokesperson confirmed that the bank is taking steps to prevent the recurrence of such misconduct.

This incident highlights the pressure banks face in maintaining quarterly performance and the need for robust governance. It also underscores the importance of ethical banking practices and the need for banks to prioritize transparency and integrity in their operations. HDFC Bank’s swift action in addressing this matter demonstrates its commitment to upholding the highest standards of ethics and compliance. The bank’s efforts to sensitize its employees and reinforce regulatory compliance will help to prevent similar incidents in the future and maintain the trust of its stakeholders.