New Delhi, Aug 27 — Top private sector lender HDFC Bank is facing a federal securities class-action lawsuit in New York over allegations that it orchestrated a covert scheme to illegally inflate interest payouts to a state government agency by disguising them as marketing expenses.

The complaint, filed in the U.S. District Court for the Southern District of New York by investor Jwalant Natvarlal Soneji, targets the Mumbai-headquartered bank along with Chief Executive Officer Sashidhar Jagdishan and Chief Financial Officer Srinivasan Vaidyanathan. The lawsuit is brought on behalf of all investors who purchased HDFC's American Depositary Shares (ADS) between July 17, 2023, and May 26, 2026.

The lawsuit alleges that HDFC promised Maharashtra State Road Development Corporation (MSRDC) a 6.01 per cent interest rate to attract big its deposits, which constituted a hefty 2.51 per cent markup over the standard 3.5 per cent savings rate offered to regular customers in violation of the RBI norms.

Since banking regulations explicitly forbid offering negotiated returns to individual depositors, senior management allegedly devised a workaround.

The lawsuit claims that between 2023 and 2025, HDFC routed approximately 45 crore rupees ($4.7 million USD) in differential interest to the state firm. Instead of being credited as interest, these funds were allegedly "camouflaged" as marketing spend to sponsor a road safety awareness campaign run by MSRDC, flowing through third-party vendors.

An internal vigilance probe reportedly concluded that this manoeuvre violated the RBI’s Master Directions, as well as HDFC's internal anti-bribery policies prohibiting "improper inducement".

Consequently, the plaintiffs argue that HDFC's SEC filings throughout the class period were materially false. In its Form 20-F annual reports for fiscal years 2024 and 2025, HDFC management assured investors that its "internal control over financial reporting was effective". The complaint alleges that by burying the interest markup in the marketing budget, HDFC artificially overstated both its operating expenses and its highly scrutinized net interest income.

While the bank's filings routinely warned that "significant fraud, system failure or calamities would disrupt our revenue-generating activities" and acknowledged past RBI penalties, the complaint suggests these generic warnings failed to disclose the active, high-level deception allegedly taking place internally.

Matters came to a head on March 18, 2026, when HDFC's Chairman, Atanu Chakraborty, abruptly resigned. Chakraborty cited “certain happenings and practices within the bank... that are not in congruence with my personal Values and Ethics” as the reason for his resignation. The sudden departure spooked investors, sending HDFC's U.S.-traded shares tumbling 7.28 per cent to close at $26.62 on unusually heavy trading volume.

The full scope of the fallout materializsed on May 27, 2026, when The Indian Express published an expose, detailing the internal probe into the MSRDC payments. The report revealed that over 10 top officials bore responsibility, including CEO Jagdishan, who allegedly verbally approved the disguised payments during senior-level discussions. Following this revelation, HDFC shares slid an additional 4.1 per cent to close at $23.78.

The plaintiffs allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. They are seeking class certification, unspecified compensatory damages, and a jury trial, claiming the bank's executives acted with reckless disregard for the truth and heavily damaged investors who purchased artificially inflated shares before the regulatory breaches came to light.

HDFC Bank, in a statement, has said, "In the United States, these types of shareholder lawsuits are incredibly common after a company experiences a stock drop, and many companies listed in the U.S. routinely defend these lawsuits each year. The Bank believes the lawsuit is without merit and intends to vigorously defend itself".

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