The Dubai Financial Services Authority (DFSA) reprimanded HDFC's Dubai International Financial Centre (DIFC) branch management more than six months ago, according to The Economic Times. The regulator found the branch incapable of managing and resolving issues after customers alleged they were wrongly sold Credit Suisse bonds by bank employees in Dubai and Bahrain. The DFSA alleged that these issues were not brought to its attention for over five years, even though they had been flagged to the bank's internal audit team at headquarters. The regulator's final decision, issued in September, barred India's most valuable private sector bank from onboarding new clients or undertaking fresh business through its Dubai DIFC branch for mis-selling the risky bonds that subsequently became worthless.
According to the DFSA's findings reported by The Economic Times, the bank's compliance and internal audit functions were aware of incorrect practices but did not take steps to ensure matters were escalated and remediated. The regulator observed that between April 1, 2017, and March 31, 2024, 61 relationship managers may have provided financial services to 1,707 non-DIFC customers. HDFC DIFC reported to the regulator that it had little or no records or documentation available for key client communications and no defined process to keep such communications. The DFSA's final decision specifically noted that this demonstrated a failure of HDFC DIFC to be open and cooperate as well as observe high standards of integrity and fair dealing.
In 2025, HDFC Bank's own ethics committee drew up a Staff Accountability Report and concluded that a high number of regulatory breaches specific to dealing with non-onboarded customers in DIFC had been identified for a considerable amount of time, as reported by The Economic Times. The panel acknowledged that various laws and rules were contravened. Bank CEO Sashidhar Jagadeshan characterized these as technical lapses in documentation and regulatory interpretation, not fraud or mis-selling, in comments to The Economic Times. The ethics committee's findings, submitted to the DFSA two months later, told the regulator that incorrect practices had been adopted during the embargo on on-boarding of new customers via offices in Bahrain.
The hasty exit of former chairman Atanu Chakraborty on March 18 precipitated a near $17 billion wipeout of shareholder wealth in just three days, according to The Economic Times. Chakraborty cited the AT1 episode as one of the reasons for his resignation, stating that certain happenings and practices within the bank were not in congruence with his personal values and ethics. The DFSA barred India's most valuable private sector bank from onboarding new clients or undertaking fresh business through its Dubai DIFC branch for mis-selling the risky bonds that subsequently became worthless. This marked the first time a part-time chairman of HDFC Bank left mid-way, raising concerns over the bank's functioning and leadership style of its senior brass.
Since 2024, at least two independent agencies--Deloitte and Kroll--had undertaken detailed investigations of the DIFC branch activities at the behest of the bank's board and even the DIFC regulator, as reported by The Economic Times. The additional tier-1 (AT1) bondholders, most of whom were non-resident Indians, have alleged since 2017-18 that bank executives mis-sold the instrument as fixed-maturity capital protected paper and obtained their signatures on blank sheets. The matter became public after a customer complaint to the Nagpur branch of the Economic Offences Wing in July. Executive Director Bhavesh Zaveri, who was in charge of the Bahrain branch's operations, is stepping down later this month.
