India’s HDFC Bank under scrutiny in UAE for selling risky bonds to unqualified clients

India’s largest private lender, HDFC Bank, has come under regulatory scrutiny in the UAE amid allegations that it sold high-risk Credit Suisse bonds to retail investors, many of whom saw their investments wiped out during the Swiss bank’s collapse.

Documents and legal notices reviewed by Khaleej Times reveal that clients were sold Additional Tier-1 (AT1) bonds — a complex, high-risk instrument — despite not meeting the financial or expertise thresholds required under Dubai Financial Services Authority (DFSA) rules. These bonds, issued by the now-defunct Credit Suisse, were written down to zero in March 2023 during its emergency merger with UBS, leaving investors with nothing.

Under DFSA regulations, AT1 bonds can only be sold to “professional clients” — typically those with a net worth exceeding $1 million or proven expertise in high-risk products. Yet, retail investors with far lower profiles allege they were aggressively targeted by HDFC Bank relationship managers, who allegedly falsified financial records to bypass safeguards.

Complaints have been filed with regulators in the UAE, Bahrain, and the Dubai International Financial Centre (DIFC), though there is no official confirmation yet of formal investigations.

Stay up to date with the latest news. Follow KT on WhatsApp Channels.

In response to a detailed query from Khaleej Times, HDFC Bank denied any wrongdoing. “The bank has robust processes to communicate product features and help clients understand product benefits and risks,” it said in a statement. “We take a serious view of any malpractice and take stringent action in such cases.”

The bank also dismissed as “speculative” reports that its chairman had met DIFC regulators following a show-cause notice. The Dubai Financial Services Authority (DFSA), when contacted, declined to comment, citing confidentiality obligations under Article 38 of the Regulatory Law.

But some clients paint a different picture.

Investors speak out

Among those affected is Dubai resident Varun Mahajan, who says he lost his entire life savings of $300,000 after investing in Credit Suisse’s 4.5% perpetual bonds on the advice of his relationship manager at HDFC Bank’s DIFC branch.

Mahajan said he was repeatedly assured the bonds were safe and that he could earn better returns by taking a USD loan against his fixed deposits in India. “I made it clear I only wanted low-risk investments with fixed returns,” he told Khaleej Times.

When the Credit Suisse crisis deepened in early 2023, Mahajan says he raised concerns but was told by the bank that prices were rebounding and there was no cause for alarm. “It was a betrayal. I had no idea I was being sold AT1 bonds. I only learnt this after everything was gone,” he said.

Mahajan alleged he was shocked to discover that HDFC Bank had forged and manipulated his KYC documents. In a legal notice and police complaint filed in India, he accused the bank of inflating his declared net worth from $400,000 to $2.4 million simply by adding a ‘2’ at the front so he could be falsely classified as a ‘professional client’ under DFSA rules. In reality, his assets were a fraction of that threshold.

Documents reviewed by Khaleej Times confirm this discrepancy.

Another Indian investor, NS, based in the Philippines, told Khaleej Times he invested $200,000 in Credit Suisse and Standard Chartered AT1 bonds through HDFC Bank — again based on advice from a Dubai-based relationship manager.

He alleged HDFC Bank misrepresented the bonds as low-risk, provided a loan sanction letter without his request, manipulated his investor profile, and enticed him into investing in high-risk instruments without warning him of market risks. “I did not sign any loan agreement, yet the bank gave me a leverage loan,” he said.

NS also claimed that his Master Services Agreement was altered, his relationship manager’s name scratched out and replaced and that even after the bonds were written off in March 2023, they continued to appear in his portfolio. “They misled me until the very end,” he said. “The bank did not have a net banking facility, thus controlling all the investments.”

Pankaj Sinha, who lives in India, stated that he lost more than $200,000 after purchasing Credit Suisse and Standard Chartered AT1 bonds through HDFC’s Bahrain branch. In a police complaint filed in Gurgaon, he alleged that the bank misrepresented the bonds as “capital-protected” with fixed maturity.

“I was told they would mature in 2026 and 2030. Only later did I learn they were perpetual and could be wiped out,” he said.

Sinha alleged that HDFC officials in Dubai instructed him over WhatsApp to sign a blank KYC form, which the bank later filled in with a fictitious net worth of $4 million to classify him as an accredited investor. “It was deceitful,” he said. “The documents were selectively shared. I was never given full agreements before signing.”

He also claimed the bank ignored his repeated requests to exit the investments. “Instead, they kept reassuring me it was capital-protected. When the bonds collapsed, they tried to distance themselves from everything they’d said on calls and WhatsApp.”

Another investor, AT, a senior telecom executive who spoke to Khaleej Times from Johannesburg, shared a similar ordeal.

He said he was first approached by his relationship manager in India, who connected him to another banker at HDFC’s Bahrain branch.

“They knew my risk appetite was extremely conservative,” AT said. “Yet they chose the riskiest product — AT1 bonds — and pushed me into it purely to earn commissions.”

He said the bank repeatedly assured him the bonds were safe and convinced him to invest $200,000. Later, they extended a leverage loan of $400,000, which pushed him into a debt trap.

When the bonds were wiped out, AT said he reached out to senior bank executives but received no help. “They even liquidated my fixed deposits in India to cover the loan in Bahrain,” he said.

Having filed a police complaint in India, AT says he is now exploring legal options in both countries. “This must be investigated. The trust people have in the banking system is at stake.”

Internal sources say the Offshore Head of HDFC Bank in Dubai has been replaced under unclear circumstances, and more than a dozen regional managers from the bank’s DIFC branch have resigned over the past few months.

Systemic concerns and regulatory gaps

Under DFSA rules, complex instruments like AT1 bonds are to be sold only to “professional clients” — those with significant assets and a sound understanding of financial risks. The cases reviewed by Khaleej Times suggest HDFC Bank bypassed these safeguards by manipulating client profiles and documentation.

In NS’s case, no Reverse Solicitation Agreement — normally required when dealing with offshore clients — was ever signed. In Mahajan and Sinha’s cases, key bond documents and risk disclosures were shared only after their investments had collapsed.

The full extent of the fallout remains unclear, but early findings suggest that multiple investors across jurisdictions may have suffered combined losses running into millions of dollars.

“Regulators will be looking into how HDFC Bank operated across various jurisdictions,” said an industry expert. “Some clients were approached by bankers in the UAE, advised from DIFC, and had accounts opened in Bahrain, raising serious questions about jurisdictional oversight and accountability.”

The DIFC is a financial-free zone with its own common-law-based legal system. Its regulatory authority, the DFSA, operates independently of the UAE’s Central Bank and enforces strict investor classification and disclosure requirements—safeguards that clients now say were sidestepped.

What are AT1 bonds?

For those unfamiliar, Additional Tier-1 (AT1) bonds are high-risk instruments that banks use to raise capital. Unlike regular bonds, they can be entirely written off or converted into equity if the issuing bank gets into financial trouble. This means investors can lose all their money—exactly what happened when Swiss authorities wiped out Credit Suisse’s AT1 bonds during its emergency merger with UBS in 2023.

Mazhar Farooqui

Mazhar Farooqui, also known as Maz, is a multiple award-winning investigative journalist and Senior …More