Why India's HDFC Bank got penalised, facing new restrictions in Dubai

Dubai: The Dubai Financial Services Authority (DFSA) has prohibited HDFC Bank’s Dubai International Financial Centre (DIFC) branch from onboarding any new clients or offering financial services to them.

This restriction follows 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 must cease all new business activities involving clients who had not completed the branch’s onboarding process by September 25. The restrictions cover a broad range of financial services, including:

As stated by HDFC Bank, “the DIFC branch has 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, “existing clients—those already onboarded—are not impacted and will continue to receive services. Additionally, clients who had previously been offered financial services but were not formally onboarded may still be allowed to complete the onboarding process under certain conditions.”

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.

Regarding these concerns, HDFC Bank said, “The business conducted at its Dubai branch was not material to its overall operations or financial position,” adding that it “has already initiated necessary steps to comply with the directives” of the DFSA and “is committed to work with the DFSA in its ongoing investigation and to promptly remediate and address the DFSA concerns at the earliest.”

The ban will remain in place until the DFSA formally amends or lifts the restrictions. As of September 23, 2025, the DIFC branch had onboarded 1,489 customers, including joint account holders.

In its filing, HDFC Bank disclosed, “As on September 23, 2025, the DIFC Branch has 1,489 customers onboarded, including joint holders.”

This development highlights growing regulatory scrutiny of cross-border banking operations, especially in major financial hubs like Dubai, where adherence to strict rules and investor protections is closely monitored. For now, HDFC Bank’s ability to expand its client base in Dubai is on hold as it works to address the DFSA’s concerns and restore full compliance.