Dubai regulator probe found HDFC’s DIFC branch kept quiet for 5 years, failed to meet integrity standards

Mumbai: The Dubai Financial Services Authority (DFSA) had reprimanded the senior management of HDFC’s branch in the emirate more than six months ago, saying it was incapable of managing and resolving issues after customers alleged they were wrongly sold Credit Suisse bonds by the bank’s employees in Dubai and Bahrain.

The independent regulator observed that the bank’s compliance team was aware of the lapses with regard to the mis-selling of the additional tier-1 (AT1) bonds since at least 2020. The DFSA also 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.

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These comments, not previously reported, were part of DFSA’s final decision that barred India’s most valuable private sector bank last September from onboarding new clients or undertaking fresh business through its Dubai International Financial Centre (DIFC) branch for mis-selling the risky bonds that subsequently became worthless. ET has seen a copy of the DFSA order.

Before issuing this, the regulator drew upon the bank’s own ethics committee’s findings, which acknowledged that the incorrect practices had been deliberate in nature.

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The DFSA said this “demonstrates a failure of HDFC Dubai International Financial Centre (DIFC) to be open and cooperate” as well as “observe high standards of integrity and fair dealing.” Incorrect Practices

According to the regulator, the compliance and internal audit functions of HDFC’s DIFC branch were aware of the incorrect practice but did not take steps to ensure the matter was escalated and remediated or brought to the attention of the DFSA for a period of over five years. “This is a clear indication that HDFC DIFC’s senior management and control functions are incapable of identifying and resolving the issues and have failed to ensure that HDFC DIFC’s affairs are managed effectively and responsibly,” said the DFSA order.

In 2025, HDFC Bank’s own ethics committee had drawn 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.” The panel had also acknowledged that various laws and rules were contravened. ET has seen a copy of this report.

Bank CEO Sashidhar Jagadeshan had however characterised these as technical lapses in documentation and regulatory interpretation, not fraud or mis‑selling, in comments made to ET.

Multiple Probes

The additional tier-1 (AT1) bondholders, most of whom were non-resident Indians (NRIs), have alleged since 2017-18 that the bank’s executives mis-sold the instrument as “fixed-maturity capital protected” paper and obtained their signatures on blank sheets. The matter became public last July after a complaint by a customer to the Nagpur branch of the Economic Offences Wing alleging mis-selling of the AT-1 bonds of Credit Suisse by HDFC Bank. The complaint named four bank officials.

Since 2024, at least two independent agencies–Deloitte and Kroll–had also undertaken a detailed investigation of the activities carried out by the DIFC branch at the behest of the bank’s board and even the DIFC regulator, said people with knowledge of the matter.

Accountability of the bank’s senior management, especially on the back of the Dubai blowback, has gained salience with Atanu Chakraborty’s abrupt resignation as chairman on March 18. At the time, he said, “Certain happenings and practices within the bank, that I have observed over the last 2 years, are not in congruence with my personal values and ethics. This is the basis of my aforementioned decision.”

The hasty exit of Chakraborty, a former career bureaucrat, precipitated a near $17 billion wipeout of shareholder wealth in just three days. This is the first time that a part-time chairman of HDFC Bank left mid-way, raising concerns over the bank’s functioning and leadership style of its senior brass.

The lender has maintained there is no link between Chakraborty’s departure and problems with the Credit Suisse bonds.

Chakraborty subsequently cited the AT1 episode as one of the reasons for his resignation.

Chakraborty declined to comment on the DFSA observations. HDFC Bank also didn’t respond to queries.

“These findings throw some light on what the former chairman meant and took up in his public discourse,” said an executive close to the development.

The DIFC is a financial special economic zone established in 2024 that functions as a separate jurisdiction under an independent legal system and is regulated by the DFSA.

In May 2025, HDFC DIFC had reported to the regulator that between April 1, 2017, and March 31, 2024, 61 relationship managers may have provided financial services to clients to 1,707 non-DIFC customers. It also said the bank had little or no records or documentation available for key client communications and no defined process to keep such communications.

The Staff Accountability Report of the bank’s ethics panel, 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. Executive Director Bhavesh Zaveri was in charge of the Bahrain branch’s operations. He is stepping down later this month.