HDFC bank puts bankers on leave amid Credit Suisse bond probe

An internal investigation is ongoing and the bank’s report is likely to be released soon

HDFC Bank Ltd., India’s largest private-sector lender, has put two senior executives on gardening leave amid a probe after customers alleged mis-selling of Credit Suisse securities, according to people familiar with the matter.

The bank took the step over the last few months with the employees, who were at the center of the allegedly disputed trades of Credit Suisse’s Additional Tier 1 bonds, the people said, asking not to be identified discussing confidential matters.

In response to Bloomberg queries, 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.” The spokesperson did not respond to Bloomberg queries regarding the bankers’ placement on leave. “HDFC Bank takes any matter pertaining to its reputation with utmost seriousness and is committed to addressing any concerns raised by stakeholders,” the spokesperson said.

Some HDFC customers have claimed they were not properly informed about the high-risk nature of the bonds, though the lender has maintained it complied with all applicable laws, according to Bloomberg News reporting last year. The bonds were written off after Credit Suisse’s emergency merger with UBS Group AG in 2023, causing thousands of investors around the world to rack up billions in losses and embroiling global banks.

An internal investigation is ongoing and the bank’s report is likely to be released soon, said the people, adding that the bank has not reached a conclusion about wrongdoing.

HDFC Bank was among the global lenders caught up in the historic fallout. The HDFC investigation is expected to determine who within the bank authorized the sale of the bonds, the people said. Once accountability is established, the bank is expected to take punitive action, they added.

The bank disclosed in a filing last month that a Dubai regulator flagged lapses in the lender’s process for offering financial services to local clients not onboarded at the Dubai International Financial Centre, resulting in a ban on adding new customers at its Dubai branch.

While the filing did not link the action to the AT1s, people familiar with the regulator’s investigation said it spurred the bank’s decision to place the bankers on leave. A spokesperson for the Dubai Financial Services Authority declined to comment.

AT1 instruments are a class of hybrid securities developed after the global financial crisis to shift the burden of bank rescues onto bondholders and away from taxpayers. They sit on the lowest rung of debt, meaning returns are attractive but their ranking in the repayment pecking order is low.

In India, banks are prohibited from selling AT1 bonds to retail investors, though exceptions are made for “professional investors” deemed financially sophisticated with more than $1 million in investable assets.