HDFC sacks employees for AT1 bond mis-selling

MUMBAI: HDFC Bank has terminated three employees, including senior executives, after an internal probe into the alleged mis-selling of Credit Suisse AT-1 bonds to NRI clients at its UAE operations. The action follows regulatory scrutiny and investor complaints. Shares of the bank closed down 2.4%, continuing Thursday's decline following the sudden resignation of the bank's chairman Atanu Chakraborty.

The employees dismissed include Sampath Kumar, group head of branch banking, Harsh Gupta, EVP for Middle East, Africa and NRI business, and Payal Mandhyan, SVP, for their roles in selling high-risk AT-1 bonds through the bank's Dubai branch, in an episode that began in Jan 2025 and has since drawn attention to persistent concerns around such instruments after the Credit Suisse collapse.

In response to a query, HDFC bank said, "The bank identified certain gaps in client onboarding requirements at its DIFC branch in the UAE and has completed a detailed and objective review of the matter.

"Appropriate remedial actions have been taken in line with internal policies. Personnel changes have been undertaken along with appropriate action as per the bank's conduct regulation."

AT-1 bonds are debt instruments with equity-like features. They offer higher yields but do not appreciate like equity, and the issuer's liabilities can be extinguished if the bank's net worth is impaired. In the event of bankruptcy, these instruments rank lowest among fixed income securities for repayment priority.

According to allegations, staff in the Dubai and Bahrain branches persuaded NRI clients to shift FCNR deposits from India to Bahrain by presenting the bonds as fixed-maturity products with assured returns. Investors were asked to sign blank documents, and key disclosures on the perpetual nature and high risk of AT-1 bonds were omitted.

These bonds were later written off during the UBS-led bailout of Credit Suisse, leading to losses for investors. The probe began in Jan 2025 after complaints from NRI investors and led to the suspension of Harsh Gupta and Payal Mandhyan.

The bank's internal investigation, conducted amid restrictions imposed by the Dubai Financial Services Authority, concluded on March 18 resulting in the terminations. The Dubai regulator barred the bank from onboarding new clients in the emirate, and the lender faces investor lawsuits.

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