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HDFC Bank told The Economic Times that the High Civil Court of Bahrain delivered favorable orders in the final two proceedings on September 9, completing the rejection of all seven cases filed by investors in Credit Suisse AT1 bonds. Five similar cases had been dismissed by the same court between July and August. The lender stated that all allegations were rejected outright. Investors were ordered to bear the costs of the proceedings in each of the seven cases.
The investors had accused HDFC Bank of gross negligence, intentional misrepresentation, incorrect customer classification, non-disclosure of product features, misuse of financial leverage and violations of product-suitability principles. According to the bank, the Bahrain court found that the investors failed to produce sufficient admissible evidence to substantiate their claims or demonstrate that their losses were attributable to HDFC Bank. The Economic Times reported that the rulings provide the lender relief from a key legal overhang arising from allegations of mis-selling of the high-risk securities.
The disputes stem from the write-down of Credit Suisse’s AT1 securities to zero during its emergency takeover by UBS in March 2023, which resulted in losses for bondholders globally. Reports in the financial press have placed the disputed amount involving HDFC Bank’s Bahrain and related UAE transactions at between 100 million and 120 million dollars, largely involving non-resident Indian clients. The bank had previously identified gaps in client onboarding requirements at its DIFC branch in the UAE and completed a detailed review of the matter.
HDFC Bank terminated three senior executives following an internal probe into the alleged mis-selling, as reported by Business Standard in July. The personnel changes were undertaken in line with the bank’s conduct regulations after the investigation uncovered issues at the Dubai branch. The Dubai Financial Services Authority had earlier barred the lender from onboarding new customers at the branch for a period.
Additional Tier 1 bonds are hybrid capital instruments designed to absorb losses in times of stress, featuring discretionary coupons and the potential for write-down if the issuer’s capital ratio falls below a regulatory trigger. A regulatory action by Swiss authorities in 2023 led to the write-down of approximately 17 billion dollars in Credit Suisse AT1 bonds. HDFC Bank has maintained that it followed all applicable rules and regulations while selling these products.
The Bahrain court’s decisions come after a series of complaints and regulatory scrutiny across Gulf jurisdictions including the UAE. Khaleej Times reported last year that some retail investors alleged they were sold the bonds despite not meeting the thresholds for professional clients under relevant rules. The lender continues to serve NRI clients through its overseas operations in the Middle East.
