Why 2 senior HDFC Bank executives were put on leave
What's the story
India's largest private lender, HDFC Bank, has placed two senior executives on gardening leave. The action comes as part of an investigation into allegations of mis-selling Credit Suisse securities. As per Bloomberg, the employees were involved in the disputed trade of Credit Suisse's Additional Tier-1 bonds. An internal investigation is underway and a report from the bank is expected soon.
Bond details
What are AT-1 bonds?
AT-1 bonds are a class of hybrid securities developed after the 2008 global financial crisis to shift the burden of bank rescues onto bondholders. They sit on the lowest rung of debt, meaning the returns are attractive but their ranking in the repayment pecking order is low. In India, banks are prohibited from selling AT-1 bonds to retail investors, except for "professional investors" deemed financially sophisticated with over $1 million in investable assets.
Official response
HDFC Bank denies mis-selling AT-1 bonds
Responding to Bloomberg's queries, an HDFC spokesperson said that "with reference to the sale of Credit Suisse AT-1 Bonds, the bank has not come across any instances of mis-selling till now." However, they didn't comment on the bankers' placement on leave. The spokesperson also emphasized that "HDFC Bank takes any matter pertaining to its reputation with utmost seriousness and is committed to addressing any concerns raised by stakeholders."
Customer complaints
Customer complaints regarding bond sales
Some HDFC customers have alleged that they were not adequately informed about the high-risk nature of these bonds. However, the bank has maintained its compliance with all applicable laws. The bonds were written off after Credit Suisse's emergency merger with UBS Group AG in 2023, leading to billions in losses for investors worldwide and embroiling global banks.
Investigation
Internal investigation to determine accountability
The ongoing internal investigation by HDFC Bank is expected to identify who within the bank authorized the sale of these bonds. Once accountability is established, punitive action will likely be taken. The probe was reportedly spurred by a Dubai regulator flagging lapses in the lender's process for offering financial services to the local clients not onboarded at the Dubai International Financial Centre.