HDFC Bank Probes Lending Practices at Vehicle Unit

The vehicle financing unit headed by Ashok Khanna had outstanding loans of more than $16 billion as of March 31.

HDFC Bank Probes Lending Practices at Vehicle Unit
A man looks at a mobile phone as he sits near a HDFC Bank branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

HDFC Bank Ltd. has conducted a probe into allegations of improper lending practices and conflicts of interests in its vehicle-financing operation involving the unit’s former head, according to people familiar with the matter.

India’s most valuable lender by market capitalization 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, said the people, who asked not to be identified as the information remains confidential. The vehicle financing unit he headed had outstanding loans of more than 1.2 trillion rupees ($16 billion) as of March 31.

HDFC Bank’s management had been discussing a proposal for Khanna to stay on as the unit’s head for six months until October, to ensure continuity ahead of the retirement later this year of longstanding Managing Director Aditya Puri, according to the people. After the investigation, Khanna retired at the end of March in line with his contract, they added.

The result of the investigation isn’t public, but it followed issues thrown up by an internal audit of the bank’s vehicle-dealer lending, as well as allegations of conflicts of interest in the purchase of global positioning systems for vehicles financed by the bank, the people said, without disclosing what the probe uncovered.

HDFC Bank fell 2.3% in Mumbai on Monday and its parent Housing Development Finance Corp. fell 2.1%, among the three worst performers on the benchmark S&P BSE Sensex index that gained 0.3%.

HDFC Bank is bracing for a leadership change with Puri set to step down after 26 years at the helm. He will retire when he turns 70 in October under Reserve Bank of India rules that restrict the age of top bank executives.

Khanna, who was 63 at the time of leaving the bank in March, had been due to step aside at the age of 60 but had been receiving extensions since 2017. That was due in part to the importance of the unit he headed, which accounts for more than 10% of the total loan book.

A spokesman for HDFC Bank confirmed there had been an investigation into the vehicle-financing unit but declined to give details. In an emailed statement, he said Khanna had retired in March in line with the terms of his employment contract.

“The bank has a well-established process of investigating every complaint that it receives and takes actions as appropriate,” the spokesman said in the email. “In the said instance as well, the bank has followed the due process.”

Khanna declined to comment on the investigation, referring questions on the subject to the bank. He denied that any extension to his contract had been proposed, adding that he had retired from the bank in March as planned.

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