HDFC Financial institution has terminated three workers, together with senior executives, after an inner investigation discovered alleged mis-selling of high-risk AT1 bonds to NRI purchasers via its abroad operations. The motion follows regulatory scrutiny and investor complaints associated to transactions carried out via the financial institution’s Dubai department.
The workers have been recognised as Sampath Kumar, group head of department banking, together with two different senior executives — Harsh Gupta (Govt Vice President, Center East, Africa, and NRI onshore enterprise) and Payal Mandhyan, (Senior Vice President), in accordance with a report in CNBC TV18. The financial institution mentioned the choice was taken after finishing an in depth inner evaluation into the sale of Credit score Suisse Further Tier-1 (AT1) bonds to non-resident Indian purchasers.
The episode dates again to January 2025 and has drawn consideration to the dangers related to complicated fixed-income devices, significantly after the collapse of Credit score Suisse, the place AT1 bonds had been written off in the course of the UBS-led rescue, inflicting heavy losses to traders.
Many of the AT1 bond consumers, lots of whom had been non-resident Indians (NRIs), alleged that financial institution executives misled them into transferring their international forex non-resident (FCNR) deposits from India to Bahrain with a view to spend money on the bonds. The AT1 bonds, price about $20 billion, had been initially written off in the course of the Credit score Suisse bailout, triggering losses for traders. Nevertheless, the Swiss Federal Administrative Courtroom later dominated that the write-off was illegal, a call that Switzerland’s regulator FINMA and UBS have challenged and are at present interesting earlier than the Supreme Courtroom.
In line with allegations, employees within the financial institution’s Dubai and Bahrain branches persuaded NRI clients to shift FCNR deposits from India to Bahrain by presenting AT1 bonds as fixed-maturity merchandise with assured returns. These devices, nevertheless, are perpetual in nature and carry considerably greater threat than conventional deposits. Traders had been reportedly requested to signal clean paperwork, and key disclosures concerning the dangers and reimbursement construction of the bonds had been allegedly not totally defined.
AT1 bonds are debt devices with equity-like options and rank among the many lowest in reimbursement precedence throughout monetary stress. Whereas they provide greater yields, they are often written down or transformed into fairness if the issuing financial institution’s monetary place weakens. In excessive circumstances, traders can lose their total funding, as seen in the course of the Credit score Suisse disaster.
HDFC Financial institution mentioned it had recognized gaps in shopper onboarding and compliance procedures at its DIFC department within the UAE and had taken remedial steps consistent with inner insurance policies. The financial institution added that personnel adjustments had been made after the evaluation and that it stays dedicated to following regulatory requirements in all jurisdictions the place it operates.
The investigation was carried out whereas the financial institution was beneath restrictions imposed by the Dubai Monetary Companies Authority (DFSA). The regulator had barred the financial institution from onboarding new purchasers within the emirate in the course of the probe. The inquiry concluded on March 18, resulting in the termination of the workers concerned.
The problem has additionally raised considerations concerning the sale of complicated monetary merchandise to retail and NRI traders with out sufficient disclosure. Market observers say the case highlights the necessity for stronger compliance controls in cross-border wealth administration companies, particularly when coping with structured merchandise and high-yield devices.
The financial institution can also face investor claims associated to the losses, as affected purchasers study authorized choices following the write-down of the bonds.
