US Class Action Suit Alleges Materially False and Misleading Statements by HDFC Bank on Vehicle Loan Business; HDFC Bank Denies Allegations
The class action suit filed in the US against HDFC Bank Ltd alleges issuance of materially false and misleading statements during the class period by the lender which the investors claim had caused significant losses and damages. Denying all the allegations, HDFC Bank, however, says it intends to defend itself vigorously in the lawsuit early next year.
 
The lawsuit mentions 31 July 2019 to 10 July 2020 as class period. It seeks to recover damages caused by violations of the federal securities laws by the lender and to pursue remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, against the Bank and certain of its top officials, including Aditya Puri, Sashidhar Jagdishan and Santosh Haldankar. 
 
Mr Puri was the managing director of HDFC Bank during the class action period, while Sashidhar Jagdishan, who is successor to Mr Puri, is head of finance at the Bank. Mr Haldankar is HDFC Bank’s vice president and/or senior vice president for legal & company secretary at all relevant times, the lawsuit states.
 
The lawsuit (copy of which is seen by Moneylife) states, "Throughout the class period, defendants (HDFC Bank) made materially false and misleading statements regarding the bank’s business, operational and compliance policies. Specifically, defendants made false and/ or misleading statements and or failed to disclose that HDFC Bank had inadequate disclosure controls and procedures and internal control over financial reporting. As a result, the Bank maintained improper lending practices in its vehicle-financing operations. Accordingly, earnings generated from the Bank’s vehicle-financing operations were unsustainable. All the foregoing, once revealed, was foreseeably likely to have a material negative impact on the Bank’s financial condition and reputation and as a result, the Bank’s public statements were materially false and misleading at all relevant times."
 
The lawsuit also refers to a report by Economic Times published on 13 July 2020 before market hours that talks about HDFC Bank's probe about lending practices at its vehicle unit. Revenues generated from HDFC Bank’s auto and commercial vehicle loans are reported as part of the Bank’s retail banking segment.
 
On 13 July 2020, during pre-market hours, The Economic Times published an article titled “HDFC Bank probes lending practices at vehicle unit.” That article reported that HDFC Bank had “conducted a probe into allegations of improper lending practices and conflicts of interests in its vehicle-financing operations involving the unit’s former head,” the lawsuit states. 
 
"...the Bank 'decided against proceeding with an earlier proposal to extend the employment of Ashok Khanna, an 18-year veteran at the bank, after the investigation was completed'... [t]he vehicle financing unit [Khanna] headed had outstanding loans of more than Rs1.2 lakh crore ($16 billion) as of 31st March'... [t]he result of the investigation isn’t public, but it followed issues thrown up by an internal audit of the [B]ank’s vehicle-dealer lending, as well as allegations of conflicts of interest in the purchase of global positioning systems for vehicles financed by the [B]ank, according to sources without disclosing what the probe uncovered," the lawsuit stated quoting the newspaper.
 
The lawsuit claims, "On this news, HDFC Bank’s American depositary share (AD”) price fell $1.37 per share, or 2.83%, to close at $47.02 per share on 13 July 2020. As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the bank’s securities, plaintiff and other class members have suffered significant losses and damages."
 
However, in a regulatory filing, HDFC Bank denied the allegations in the class action suit filed in the US. "...we wish to inform you that the Bank is aware of a complaint that was recently filed against the Bank and its three employees in the US. The lawsuit, which was filed by a single small security holder, who seeks to represent a class of the Bank's security holders, is based on allegations that the security holder claims caused a temporary decline in the Bank's ADR stock price in July 2020," the Bank says.
 
"The Bank denies the allegations and intends to defend itself vigorously in the lawsuit. The Bank expects its response to the lawsuit to be due in early 2021," HDFC Bank says, adding, "Since the lawsuit is at a premature stage, there is no matter at this point of time, which requires disclosure as per Regulation 30 of SEBI (Listing Obligations & Disclosure Requirements) Regulations."
 
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    s5rwav

    1 month ago

    What does Mr #AjayTyagi the #SEBIIndia Chief, Mr #ShaktikantaDas the #RBIGovernor at Mumbai and Mrs #NirmalaSitharaman the Finance Minister of Mr Narendra Modi Govt at Centre since the Year 2014 has to Say other than #SilencePlease? I am Babubhai Vaghela from Ahmedabad. Thanks.

    REPLY

    Newme

    In Reply to s5rwav 1 month ago

    Is this comment intended for the article about case against HDFC Bank in US?

    s5rwav

    In Reply to Newme 1 month ago

    Yes please. I am Babubhai Vaghela from Ahmedabad. Thanks.

    Gyan Sangam a failure, efforts by NDA govt to reform banks still-born: Raghuram Rajan
    An outspoken critic of the NDA government, former RBI Governor Raghuram Rajan has launched an attack on the policies of the government highlighting the "still-born effort to reform public sector banks" and "the failure of the Gyan Sangam", a conclave held on the banking sector in 2015.
     
    These points have been brought forth by Rajan in a paper co-authored with former RBI Deputy Governor Viral Acharya, also seen as a government critic who had resigned from his post.
     
    While giving a number of suggestions on banking reforms in the paper, including winding up of the Department of Financial Services in the Finance Ministry and reducing government stake below 50 per cent, Rajan said many of these have been discussed in the past which concern public sector banks and their governance.
     
    "Is there any reason to be more confident that they will be implemented now," Rajan asked.
     
    "One salutary warning should be the NDA government's still-born effort to reform public sector banks," Rajan and Acharya said in the paper.
     
    Following the PJ Nayak Committee report of 2014, the government brought a variety of key players together to the Gyan Sangam in early 2015, which recommended the setting up of a Bank Board Bureau to make public sector bank appointments, and the creation of strong empowered bank boards that would allow banks to have differentiated strategies.
     
    One complaint heard there was that every public sector bank branch looked similar, no matter which bank it belonged to and no matter where it was located.
     
    "These ideas were supported by the Prime Minister," the paper said.
     
    Prime Minister Narendra Modi had presided over the conclave while Rajan was the RBI Governor then.
     
    "Yet five years later, it appears that little has changed. The government still appoint bank CEOs; instead of the earlier practice of appointing a nomination committee dominated by government bureaucrats and regulators (with a couple of academics and retired bankers to ensure an outside opinion), that same committee is lodged within the Bank Board Bureau," the paper said.
     
    "The final decision as well as allocation of selected CEOs to banks is still with the government. The Department of Financial Services still appoints bank board members and decides on important strategies such as mergers," it added.
     
    "The failure of the Gyan Sangam suggests that any change has to have steady political support (rather than a one-off ceremony) and will have to be forced on a bureaucracy, notably the Department of Financial Services in the Finance Ministry, that has little incentive to change. Yet it is probably unfair to blame just the bureaucracy -- the government in power has little incentive to loosen its grip on public sector banks. Why," Rajan and Acharya asked.
     
    The paper argues that the government obtains enormous power from directing bank lending. "Sometimes this power is exercised to advance public goals such as financial inclusion or infrastructure finance, sometimes it is used to offer patronage to, or exercise control over, industrialists," it said.
     
    "The government also has potential access to an enormous amount of sensitive information through its state ownership. For instance, the identity of purchasers of electoral bonds is known only to the State Bank of India," the paper said.
     
    "The government can oblige party members by appointing favourites to positions in public sector banks, including on their boards, and once there, some of these appointees use their influence to direct bank loans to favoured parties.
     
    "Parliamentarians of all parties are not immune to the lure of public sector banks, the banks are often asked to arrange the logistics for their fact-finding committee meetings in enjoyable locales across the country. And Finance Ministry bureaucrats are reluctant to let go of the power that allows a young joint secretary to order the chairpersons of national banks around," the paper noted.
     
    Change is necessary, and perhaps it may be forced by the pandemic, Rajan and Acharya argued.
     
    The costs of the system, as reflected in the huge loan losses it generates, may soon be greater than what the government can afford to pay. With government deficits and debt levels reaching enormous levels, there are simply not enough budgetary resources to recapitalise banks, they said.
     
    "An encumbered, under-capitalised public sector banking system will not lend well, which will be a huge tax on growth, as it has been for the last six years. More worrisome, without reform the banks will cumulate further losses," the paper said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article

     

  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    Meenal Mamdani

    1 month ago

    A timely criticism stating what all informed people in India already know.

    I cannot see any politician giving up up power voluntarily. There must be public pressure through media exposure of politicians and bureaucrats who are using this power to reward themselves and their cronies.

    Judiciary would have been invaluable in this struggle but without judicial reform it is unlikely to be of help in this fight. We need judicial reform urgently. But will politicians agree to enact such laws, something that will clip their wings?

    s5rwav

    1 month ago

    Secret Electoral Bonds Made it Possibe, for the Political Party Ruling India at the Centre since the Year 2014, Garner Major Chunk of the Contribution by Persons whose Identities have Not been Disclosed by the #StateBankOfIndia and the #ChairmanSBI Mr #RajnishKumar, #BoardOfDirectors of the State Bank of India and the RBI Governor Mr #ShaktikantaDas be Declared #AntiNational Criminals and Prosecuted for Sedition in Mumbai Court. I am Babubhai Vaghela from Ahmedabad on Whatsapp Number 9409475783. Thanks....

    CBI raids in Delhi, UP, Rajasthan and Haryana in Kwality's Rs1,400 crore bank fraud case
    The Central Bureau of Investigation (CBI) on Monday carried out searches at eight locations in Delhi, Uttar Pradesh, Rajasthan and Haryana over alleged bank fraud to the tune of Rs 1,400 crore by a private company.
     
    A CBI spokesperson here said that the multiple agency team carried out searches in Delhi, Uttar Pradesh's Saharapur, Bulandshahr, Haryana's Palwal and Rajasthan's Ajmer on the premises of Delhi-based Kwality Ltd, Sanjay Dhingra, Siddhant Gupta, Arun Srivastava and other unknown persons.
     
    The action comes after the CBI registered a case on a complaint from Bank of India against Kwality Ltd and others including its Directors, and other unknown persons for causing an alleged loss of Rs 1,400.62 crore to Bank of India and other consortium of banks.
     
    "It was alleged in the complaint that the said accused had cheated the Bank of India-led consortium comprising BOI (lead bank), Canara Bank, BoB, Andhra Bank, Corporation Bank, IDBI, Central Bank of India, Dhanlaxmi Bank, Syndicate Bank to the tune of Rs 1,400.62 crore by way of diversion of bank funds, sham transactions with related parties, fabricated documents/receipts, falsified books of accounts, created false assets and liabilities etc," the official said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • User 

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 4 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone