By Kavita Mistry 
HDFC Bank has launched internal corrective measures after finding that some employees created temporary deposit accounts to inflate quarterly deposit numbers.
These accounts were funded using unutilised working capital limits of corporate clients to artificially improve financial metrics presented to regulators and investors.
HDFC Bank Acts Against Use of Temporary Deposits to Artificially Inflate Earnings
An internal email in late March raised concerns over CASA/TD entries made using CCOD (Cash Credit and Overdraft) facilities without valid business reasons.
CCOD facilities provide businesses with flexible access to working capital, which can be drawn as needed.
Some relationship managers reportedly asked clients to transfer unused CCOD funds to their bank accounts just before quarter-end to boost deposit figures temporarily.
These transferred funds were usually reversed within two to three days after the quarter closed.
Clients were charged minimal interest on these funds and were compensated by the bank’s branches through incentives, nullifying any financial burden.
Corporate clients often comply with such requests due to their reliance on banking relationships and the need for ongoing credit support.
While such quarter-end tactics are not always illegal, they raise ethical concerns as they misrepresent actual growth and financial strength.
How Do Temporary Deposits Affect Financial Metrics?
Temporary deposits can positively affect key financial metrics such as:
a. Liquidity coverage ratio (LCR)
b. Net interest income for the quarter
c. Loan-to-deposit ratio
d. Investor perception of bank growth
However, these improvements are short-term and may mislead stakeholders regarding the bank’s real financial health.
Repeated use of such tactics could attract regulatory scrutiny, damage the bank’s credibility, and result in penalties or operational restrictions.
HDFC Bank’s internal communication indicated a strict stance against such practices, warning employees of disciplinary action for non-compliance.
Supervisors were instructed to counsel staff and prevent recurrence of such misconduct.
A bank spokesperson confirmed that disciplinary measures had been initiated against those involved.
HDFC Bank is conducting sensitisation programmes across branches to reinforce ethical standards and regulatory compliance.
This incident highlights the pressure banks face in maintaining quarterly performance and the need for robust governance.