India’s largest private-sector lender, HDFC Bank Ltd., has placed two senior executives on leave in connection with an internal investigation into the sale of high-risk bonds issued by Credit Suisse Group AG.
According to reports, the move follows complaints that some clients were not adequately informed of the risk profile of the so-called Additional Tier 1 (AT1) instruments.
The two executives were reportedly involved in trades of the AT1 securities which were among the broader global fallout after Credit Suisse’s emergency takeover by UBS Group AG in 2023.
The takeover triggered the complete write-off of the bonds, saddling investors worldwide with substantial losses.
HDFC Bank, in its response to Bloomberg, said it has “not come across any instances of mis-selling till now” and emphasised that it “takes any matter pertaining to its reputation with utmost seriousness and is committed to addressing any concerns raised by stakeholders.”
The probe reportedly spans several months and is focused on identifying who within the bank authorised the sale of the AT1 securities, whether internal approvals were properly obtained and whether client suitability was adequately assessed.
The investigation gained impetus after a regulator in Dubai flagged deficiencies in HDFC Bank’s processes.
The bank disclosed in a regulatory filing that the Dubai Financial Services Authority (DFSA) had restricted its Dubai branch from onboarding new customers due to lapses in the provision of financial services to clients not formally onboarded at the Dubai International Financial Centre (DIFC).
Though the filing did not directly link the restriction to the AT1 bond trades, people familiar with the matter said it was a factor in the bank’s decision to impose the leave on the executives.
AT1 bonds are a class of hybrid debt instruments introduced after the global financial crisis to absorb losses in stressed banks before taxpayer funds are used.
They offer higher yields but rank lowest in the repayment hierarchy, meaning an investor can lose their principal in a recapitalisation event.
Notably, in India, regulators prohibit the sale of AT1 bonds to retail investors; only “professional investors” with more than US $1 million in investable assets are eligible.
Some HDFC Bank customers have alleged that they were not clearly informed about the high-risk nature of these bonds, although the bank maintains it adhered to all applicable laws.
HDFC Bank’s decision to place the executives on leave appears to be a precautionary move while the investigation continues.
The bank has not yet reached any definitive conclusion of wrongdoing, and no public statement has been made regarding specific outcomes or potential remediation for affected clients.
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