HDFC Bank puts senior executives on gardening leave after Dubai flags compliance lapses

Dubai: HDFC Bank has placed two senior executives on gardening leave after a compliance review by Dubai’s financial regulator flagged lapses in how the lender offered services to local clients. The move, reported by Bloomberg, forms part of an internal probe into the alleged mis-selling of Credit Suisse’s high-risk Additional Tier 1 bonds to some customers.

The bank’s move follows a filing last month that revealed the Dubai Financial Services Authority (DFSA) had flagged lapses in how HDFC offered financial services to local clients who were not onboarded at the Dubai International Financial Centre. The regulator’s finding led to a temporary ban on adding new customers at the Dubai branch. The DFSA did not respond to Gulf News’ query at the time of publishing.

While the filing did not directly link the Dubai action to the Credit Suisse bonds, Bloomberg said people familiar with the matter indicated the regulator’s review prompted HDFC Bank to sideline the two executives. A DFSA spokesperson declined to comment.

New restrictions in Dubai

In September, the Dubai Financial Services Authority (DFSA) prohibited HDFC Bank’s DIFC branch from onboarding any new clients or offering financial services to them.

The restriction followed regulatory concerns related to client-onboarding procedures and the provision of services to customers who had not been fully registered in accordance with DFSA standards.

Effective September 26, 2025, HDFC Bank’s DIFC branch was required to cease all new business activities involving clients who had not completed the branch’s onboarding process by September 25. The restrictions covered a broad range of financial services, including:

• Advising on financial products

• Arranging investment transactions

• Facilitating or advising on credit facilities

• Providing custody services

• Engaging in financial promotions

As stated by HDFC Bank, “the DIFC branch had been prohibited from engaging in financial services for new clients, including advising on financial products, arranging deals in investments, arranging credit, and providing custody services.”

The bank further clarified that “existing clients, those already onboarded, were not impacted and continued to receive services. Additionally, clients who had previously been offered financial services but were not formally onboarded were allowed to complete the onboarding process under certain conditions.”

Why it happened

The DFSA’s decision points to significant concerns regarding the offering of financial services to clients who had not undergone proper onboarding, as well as deficiencies in the branch’s onboarding procedures. This regulatory action coincides with allegations that HDFC Bank sold high-risk Credit Suisse Additional Tier 1 (AT1) bonds within the UAE market, potentially circumventing investor protection rules.

Some investors have claimed that they were improperly classified as “professional clients” to gain access to these complex financial products, which are typically restricted to sophisticated investors under UAE regulations. In India, AT1 bonds cannot be sold to retail investors except under strict conditions applicable to professional investors.

In response to Bloomberg’s queries, an HDFC Bank spokesperson said, “With reference to the sale of Credit Suisse AT1 Bonds, the bank has not come across any instances of mis-selling till now.” The spokesperson did not address the bankers’ leave but added, “HDFC Bank takes any matter pertaining to its reputation with utmost seriousness and is committed to addressing any concerns raised by stakeholders.”

Some HDFC customers have claimed they were not adequately informed about the risks tied to the hybrid securities, which sit at the lowest rung of bank capital structures. AT1 instruments were introduced after the 2008 financial crisis to ensure investors, rather than taxpayers, bear the cost of future bank failures.

HDFC Bank’s internal investigation, still under way, aims to determine who authorised the bond sales and whether any internal controls were breached. Bloomberg reported the bank’s findings are expected soon, after which accountability measures could follow.

Under Indian regulations, lenders are barred from selling AT1 bonds to retail investors, except to “professional investors” with more than $1 million in investable assets. The HDFC case has reignited discussion on how complex securities are marketed and whether safeguards for non-institutional clients remain sufficient.