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HDFC Bank’s Dubai International Financial Centre has been barred from onboarding new clients or offering financial services to them, following regulatory action by Dubai’s financial watchdog. The action stems from concerns over the bank’s onboarding practices and its role in past mis-selling of complex financial instruments. While existing clients remain unaffected, the decision adds to ongoing scrutiny the Indian bank faces in the UAE.
DFSA restriction on HDFC Bank’s DIFC branch
The Dubai Financial Services Authority (DFSA) has imposed strict restrictions on the Dubai International Financial Centre (DIFC) branch of HDFC Bank Limited, preventing it from onboarding new clients or promoting any financial services until further notice. As per the DFSA’s statement issued on Thursday, September 25, the following activities are now prohibited for clients who had not completed onboarding by that date:
- Advising on financial products
- Arranging deals in investments
- Arranging or advising on credit
- Arranging custody services
- Marketing or promoting any financial services to prospective clients
These restrictions took effect on Friday, September 26, and will stay in place unless they are amended or revoked in writing by the DFSA, in accordance with Article 75(1) of the Regulatory Law 2004.
HDFC Bank’s response and operational impact
In response, HDFC Bank, headquartered in Mumbai, issued a stock exchange disclosure on September 26 confirming receipt of the DFSA’s decision. The bank stated that compliance measures have already been initiated. The bank clarified that its DIFC branch will continue to serve its 1,489 existing customers, including joint account holders, as of Tuesday, September 23. It also assured stakeholders that the impacted business is not significant in the context of the bank’s overall operations.“The business undertaken at the DIFC branch is not material to the Bank’s operations or financial position, and no significant impact is expected,” the disclosure signed by Company Secretary Ajay Agarwal stated. Additionally, the bank expressed its intent to fully cooperate with the DFSA:“The bank has already initiated necessary steps to comply with the directives in the above-referred notice and is committed to work with the DFSA in its ongoing investigation and to promptly remediate and address the DFSA concerns at the earliest,” said the company in a statement.
Background, scrutiny tied to mis-selling of risky bonds
The current restrictions follow ongoing regulatory scrutiny over alleged lapses in the bank’s client onboarding process. This scrutiny is closely linked to a past controversy involving the mis-selling of high-risk financial instruments, particularly Credit Suisse Additional Tier-1 (AT1) bonds. These AT1 bonds were wiped out entirely during the emergency merger between Credit Suisse and UBS in March 2023, resulting in significant losses for investors. Many of these investors were wealthy non-resident Indians, some of whom also faced margin calls due to leveraged positions based on these bonds. The DFSA began examining whether HDFC Bank’s DIFC branch had correctly onboarded clients under the centre’s specific regulatory framework, which enforces stricter classifications for “professional clients.” Investigations focused on whether clients met the eligibility criteria for being sold such high-risk instruments. Earlier reports, including one by Khaleej Times in June, had detailed complaints that HDFC Bank was involved in selling these bonds through its UAE network. The sales process reportedly included:
- Advisory services from personnel in the DIFC branch
- Relationship management conducted by staff at its Dubai representative office
- Account execution and booking through the bank’s Bahrain branch
This multi-branch involvement raised regulatory concerns about accountability and procedural lapses in client assessment and risk disclosure.
What the restrictions mean and what’s next
The DFSA’s current action means HDFC Bank’s DIFC branch cannot engage in any financial business with new clients until the regulator is satisfied with remedial measures. However, existing clients are not affected by the decision and will continue to receive regular services. The bank has assured that it is working closely with the regulator to resolve the issues as quickly as possible. No timeline has been shared publicly for when the restrictions might be lifted. While the business impact appears minimal, given the small size of the DIFC branch in the context of HDFC Bank’s global operations — the case adds to a growing list of international compliance challenges faced by Indian banks as they expand into heavily regulated jurisdictions like the UAE.
