HDFC Bank punished 12 employees, including senior leader Ashish Parthasarathy, because they were involved in selling risky bonds (called AT1 bonds) to customers in the wrong way. These bonds were issued by Credit Suisse and are high-risk investments. Some customers, especially NRIs living in Dubai, were allegedly not fully informed about the risks of the investment or were given incorrect or misleading information. This kind of situation, where products are sold without properly explaining the risks or by giving wrong details, is known as “mis-selling.”
What went wrong?
The bank failed to properly verify the financial strength (net worth) of customers before selling them these risky investment products. As per the rules, such bonds should be sold only to well-informed or financially strong investors who can handle potential losses. However, these checks were either weak or not done correctly. Some customers say they were encouraged to move their deposits abroad (to places like Bahrain) and invest in these risky bonds, which led to complaints.
These bonds later lost all their value, becoming worth zero and causing heavy losses for the investors who had bought them. Following this, regulators in Dubai also took action against the bank’s branch for its role in the issue. As a result, the incident negatively affected the bank’s reputation and reduced the trust customers place in it.
What action did the bank take?
The bank did not file any criminal case, but it took strict internal action against the employees involved. It stopped their salary hikes and cancelled their bonuses and ESOPs. In some earlier cases, even senior employees were removed from their jobs. This shows that the bank is taking disciplinary action within the organization to address and correct these mistakes.
Because of this issue, the regulator Dubai Financial Services Authority took action: It banned HDFC Bank’s Dubai branch from getting new customers or doing new business. However, the CEO of HDFC Bank, Sashidhar Jagdishan, says that there was no fraud or cheating. It was mainly a technical mistake in following rules and documentation.
Also Read: HDFC Bank Hit by DFSA Sanctions in Dubai, No New Clients Allowed at DIFC Branch
