Housing Development Finance Corporation [Get Quote] (HDFC [Get Quote]) and Citigroup have snapped their arrangement under which the American bank's India network was to start selling the mortgage lender's loan products.

The two had signed an operating agreement for cross-selling each other's products recently, which followed the Citigroup increasing its stake in HDFC to 12.3 per cent and nominating its representative on the HDFC board. Citigroup officially describes its stake in HDFC as a financial investment.

Banking sources said Citigroup and HDFC are not going ahead with their plan as it would have created a conflict of interest between HDFC Bank and its promoter, HDFC. HDFC Bank has not launched its own home loan products and instead sells HDFC loans for a fee. HDFC holds around 23.32 per cent in the bank.

Citigroup, in response to an email query, said, "We will have to decline comment."

HDFC did not reply to an email sent a week back.

In May, Keki Mistry, managing director, HDFC, said HDFC's arrangement  with Citigroup would be worked out in such a way that there would be no conflict of interest with HDFC Bank.

HDFC Bank, in its recent filing with the Securities and Exchange  Commission with regard to its $700 million American depository receipts issue, stated  that,"the bank may face potential conflicts of interest relating to our  principal shareholder, HDFC Limited.''

HDFC and Citigroup had plans to expand their cross-sell relationship beyond home loans, which were to be sold based on the mortgage lender's risk  criteria.

When HDFC decided to make a preferential allotment to private equity investor Carlyle Group, Citigroup sought a preferential allotment to itself to ensure the US financial services provider's stake in HDFC remains at 12.3  per cent.