HDFC Bank Executives On 'Gardening Leave' Amid Credit Suisse Bond Mis-selling Allegations: Report

HDFC Bank Ltd., India’s leading private-sector bank, has placed two senior executives on 'gardening leave' as part of an internal investigation into alleged mis-selling of Credit Suisse’s Additional Tier 1 (AT1) bonds to customers.

What Triggered the Probe?

As per a Bloomberg report, the action follows complaints from customers who claim they were not adequately informed about the high-risk profile of these bonds. The securities were completely written off during Credit Suisse’s emergency takeover by UBS Group AG in 2023, leading to massive losses for investors worldwide.

The two executives were reportedly at the heart of the disputed trades involving these controversial AT1 instruments, according to sources familiar with the matter who spoke to Bloomberg on condition of anonymity.

HDFC Bank’s Official Response

An HDFC 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,” in a statement to Bloomberg.

The spokesperson declined to comment on the executives being placed on 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.”

Ongoing Internal Investigation

As per the Bloomberg report, HDFC Bank is conducting a thorough internal probe, with a final report expected soon. The investigation aims to identify who authorised the sale of these bonds and determine if any wrongdoing occurred.

Sources indicate that once accountability is established, the bank plans to take appropriate disciplinary measures.

Dubai Regulator’s Role in the Matter

Last month, HDFC Bank disclosed in a regulatory filing that the Dubai Financial Services Authority (DFSA) had imposed a temporary ban on onboarding new customers at its Dubai branch.

The restriction stemmed from procedural lapses in offering financial services to clients outside the Dubai International Financial Centre (DIFC).

Although the filing did not explicitly connect the Dubai action to the AT1 bond sales, insiders told Bloomberg that the regulator’s findings played a key role in the decision to sideline the two executives.

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Understanding AT1 Bonds and Regulatory Restrictions in India

AT1 bonds are hybrid securities created post the 2008 global financial crisis to protect taxpayers by absorbing losses during bank failures.

They offer high yields but rank lowest in the repayment hierarchy, making them inherently risky.

In India, retail investors are barred from purchasing AT1 bonds. Sales are permitted only to “professional investors,” i.e., individuals with over $1 million in investable assets, who are presumed to understand the risks involved.

Despite this, some HDFC customers have alleged they were misled about the bonds’ safety, as reported earlier by Bloomberg.

Bottom-line 

The Credit Suisse AT1 bond wipeout remains one of the most controversial episodes in recent banking history, affecting thousands of investors and drawing scrutiny on banks worldwide that distributed these instruments.