HDFC Takes Action Against Employees Over Temporary Deposit Practices To Inflate Quarterly Numbers

HDFC Bank is taking stricter action against employees who were found creating temporary deposit accounts to inflate quarterly results, according to a report by Mint, which reviewed a March-end internal email sent by the bank.

"During (the) bank's due diligence check, temporary creation of CASA/TD (current account and savings account/term deposits) has been identified by utilizing CCOD (cash credit, overdraft) without observable business logic/requirements," the email stated.

How Temporary Deposits Boost Quarterly Results?

The report explained that banks often allow business customers to access working capital loans through CCOD facilities. In some instances, bank relationship managers request these customers to use their unutilized CCOD limits at the end of a quarter. When customers agree, the bank transfers the unused limit into their current accounts, artificially boosting the bank's total deposit figures for that quarter.

These temporary deposits are typically reversed within two to three days after the quarter closes. Although customers incur a nominal interest charge for utilizing the CCOD limit, branches often offset the impact through incentives, ensuring the customers do not bear any significant financial burden.

"These customers rely heavily on their relationship with the bank and often find it difficult to refuse when asked for such favors," a senior consultant who advises top-tier banks told Mint.

Boosting deposit numbers through such practices has been a longstanding trend within the banking industry. Temporary end-of-quarter deposits can inflate liquidity ratios, enhance net interest income, improve loan-to-deposit ratios, and present a healthier balance sheet to regulators and investors. In highly competitive markets, strong quarterly numbers often help banks attract more investments and gain market credibility.

However, while the practice may appear beneficial in the short term, it misleads regulators, investors, and customers about the bank's true financial health. Frequent use of such tactics can invite regulatory scrutiny, damage reputation, and even lead to penalties or corrective measures by authorities.

HDFC Bank's Response

According to the Mint report, HDFC Bank emphasized in the internal email that it does not endorse such activities. The bank instructed supervisors to counsel staff against pursuing such transactions and warned that "necessary staff action" would be taken in cases of non-compliance.

A spokesperson for HDFC Bank told Mint that disciplinary action has already been taken against employees involved in such practices. Another spokesperson added that the bank has also begun sensitizing employees across branches, reinforcing its commitment to upholding banking ethics, transparency, and regulatory standards.

In a separate incident reported in March, a major fraud case emerged at HDFC Bank's branch in Betul district of Madhya Pradesh. According to Patrika, employees at the branch allegedly forged documents to embezzle large sums of money from customer accounts, reportedly for IPL betting activities.

The report stated that more than six account holders have filed complaints, alleging that bank employees siphoned off funds through various means, including the creation of fake credit cards, unauthorized fixed deposits (FDs), misuse of self-cheques, and fraudulent online transactions. However, it is important to note that these claims are currently allegations and have not yet been officially confirmed or proven by authorities.