According to Bloomberg, HDFC Bank , India’s biggest private bank, is investigating two of its senior employees because some customers said the bank mis-sold risky Credit Suisse bonds (called AT1 bonds). The bank has put these employees on gardening leave.
Gardening leave means the executives are still employed and paid, but they are temporarily relieved of their duties often to prevent interference while it investigates.
Additional Tier 1 (AT1) bonds are risky investments that give higher returns but can lose all value if the bank that issued them gets into trouble. They were created after the 2008 financial crisis so that if a bank got into trouble, the bondholders (investors) — not taxpayers — would take the loss. These bonds pay high interest but are very risky. If the bank fails, investors can lose all their money.
That’s exactly what happened in 2023, Credit Suisse almost collapsed and merged with UBS. As part of that deal, Credit Suisse’s AT1 bonds became worthless and investors lost everything. Some HDFC Bank customers say they were not properly told how risky these bonds were before buying them. In India, such high-risk bonds are not supposed to be sold to regular investors — only to “professional investors” who have at least $1 million to invest and understand the risks.
HDFC Bank says that it hasn’t found any proof yet that employees misled customers. However, HDFC Bank is still investigating internally about:
- Who approved the sale of these bonds
- Whether customers were properly informed about the risks
- If any employee violated bank policies
Depending on what the investigation finds, the bank may take disciplinary action. Separately, HDFC Bank’s Dubai branch got into trouble with a local regulator for not following proper procedures when offering financial services to some clients.
This led to a temporary ban on adding new customers at that branch.
Although this wasn’t officially linked to the Credit Suisse bonds, people familiar with the matter say it may have prompted HDFC to act more cautiously — including putting those two bankers on leave.