HDFC Bank Faces Scrutiny in Dubai Over Compliance Lapses

Dubai – India’s largest private lender, HDFC Bank, has come under regulatory scrutiny in Dubai after the emirate’s financial watchdog flagged major compliance lapses in how the bank handled local clients. The move has prompted HDFC to place two senior executives on gardening leave as part of an internal investigation.

The Dubai Financial Services Authority (DFSA) raised concerns over HDFC Bank’s practices at its Dubai International Financial Centre (DIFC) branch, where services were reportedly extended to clients who had not been properly onboarded. Following the review, the regulator temporarily banned the bank from signing up new customers or offering them financial services.

According to Bloomberg, the internal probe was triggered after the DFSA identified irregularities in client-onboarding procedures. Sources familiar with the matter also suggested that the investigation was linked to the alleged mis-selling of Credit Suisse’s Additional Tier 1 (AT1) bonds—high-risk instruments intended only for professional investors.

The DFSA’s restrictions, effective since September 26, 2025, prohibit the DIFC branch from engaging in new business activities such as advising on financial products, arranging investment deals, credit facilities, and custody services. Existing clients, however, continue to receive uninterrupted services.

The controversy stems from claims that some HDFC clients were offered complex AT1 bonds without full disclosure of the risks. These hybrid securities, introduced after the 2008 financial crisis, are designed to absorb losses during financial distress and are not meant for retail investors. Reports suggest that some customers were improperly classified as “professional clients” to access these products, raising serious compliance questions.

HDFC Bank, in its recent statement, maintained that it has found no evidence of mis-selling so far but reaffirmed its commitment to addressing all regulatory concerns. The bank’s internal probe aims to determine how the bond sales were authorised and whether internal safeguards were breached. Findings from the investigation are expected soon.

The DFSA, meanwhile, continues to monitor the situation closely as HDFC Bank works to restore regulatory confidence in its Dubai operations—a key overseas hub for its wealthy client base.