HDFC Bank AT1 bond misselling case

Background

HDFC Bank's overseas operations in the United Arab Emirates and Bahrain primarily serve NRI clients, often managing foreign currency non-resident (FCNR) deposits. The employees at these overseas branches were reportedly offered AT1 bonds to those NRIs and presented it as safe, fixed-return investments similar to deposits, without full disclosure of their perpetual nature and write-down risks. These were allegedly marketed as high-yield (10–13%), capital-protected or fixed-maturity products. Some investors claimed they signed blank forms or received inadequate risk disclosures. Estimated exposure has been reported in the range of US$100–120 million (approximately ₹800–1,000 crore).

AT1 bonds are hybrid capital instruments designed to absorb losses in times of stress. They are perpetual (or very long-dated), pay discretionary coupons, and can be written down or converted to equity if the issuer's capital ratio falls below a regulatory "point of non-viability" trigger. In March 2023, FINMA wrote down approximately US$17 billion of Credit Suisse AT1 bonds to zero as part of the bank's rescue by UBS, resulting in total losses for bondholders.