HDFC Bank Slapped with Rs 91 Lakh Penalty from RBI Over KYC and Benchmark Issues; Check Details

The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs 91 lakh on HDFC Bank for failing to comply with several important rules related to Know Your Customer (KYC), interest rate guidelines, and outsourcing regulations.

According to the central bank, the penalties were imposed after HDFC Bank was found violating provisions of the Banking Regulation (BR) Act, RBI's operational guidelines, and other regulatory instructions. A show-cause notice was issued to the bank, after which RBI concluded that the violations were serious enough to attract a financial penalty.

Multiple Interest Rate Benchmarks Used for the Same Loan Category

One of the major issues highlighted by RBI was that HDFC Bank had used multiple interest rate benchmarks for the same type of loan, which is not permitted under RBI norms. Banks are required to use one consistent benchmark for all customers within the same loan category to maintain transparency and fairness.

To understand this, consider a simple example: if three customers take a home loan, the bank must calculate interest using the same method or benchmark for all three, such as EBLR (External Benchmark Lending Rate). But if one customer's loan is linked to EBLR, another's to MCLR, and another's to a repo-linked rate, then customers end up paying interest based on different systems even though they have the same loan product. This creates confusion and unfair treatment. RBI found this happening in HDFC Bank's loan portfolio.

Subsidiary Engaged in Non-Permitted Business Activities

RBI also discovered that a wholly owned subsidiary of HDFC Bank was conducting activities that are not allowed for banking companies under Section 6 of the Banking Regulation Act. Banks and their subsidiaries must operate strictly within the scope of activities permitted by law. Any business outside this approved list violates regulatory boundaries and could expose customers to risks.

Improper Outsourcing of KYC Compliance Work

Another major violation relates to KYC (Know Your Customer) norms. Under RBI rules, banks may take help from third-party vendors for customer verification. Still, the final responsibility for checking whether a customer meets KYC rules must remain with the bank itself. HDFC Bank, however, outsourced the task of determining KYC compliance to external agents, something RBI strictly prohibits.

RBI's Decision

After reviewing all findings and HDFC Bank's response, the RBI concluded that the violations were major and imposed the Rs 91 lakh penalty. The central bank clarified that the penalty is based on regulatory lapses and does not question the validity of any transactions between the bank and its customers.