Summary:
HDFC Bank is facing complaints from NRI investors over a $100 million life settlement fund marketed through its overseas arm, with redemptions reportedly stuck since 2020. Investors allege that the risks of the product were not adequately disclosed when they invested. HDFC Bank has maintained that it only facilitated transactions and was not responsible for the fund's performance.
A group of non-resident Indian investors are complaining about an investment product through HDFC Bank’s overseas arm after the redemption of the scheme got stuck, with the funds tied up in a Luxembourg-based life settlement company.
The investors who bought into the HDFC Bank product claimed that the bank lured depositors with a 14-16% returns yielding investment product, in which about $100 million was collected between 2017 and 2019.
As many as 70 investors have now approached the bank as the promoter after approaching several authorities, claiming that each had invested an average of $175,000, making the total amount invested by them about $12.5 million or ₹120 crore.
What Is A Life Settlement Fund?
The investment product was a life settlement fund run by the Luxembourg headquartered Carlisle Asset Management Company, which is a life settlement fund specialising in buying life insurance policies from policy owners looking to sell them.
In this kind of settlement, the third party buys life insurance policies from the owner of the policy, and then continues to pay the premiums until the death of the insured person under the policy, upon which the buying party gets the sum assured under the policy.
These settlement funds are legal in the US, Canada, and Europe, but they are not popular in India. Further, the returns on such a settlement fund have nothing to do with the returns on the stock market or bonds.
According to the prospectus of the fund that was shared with the investors, as per the reports, the fund’s returns stood at an average of around 21% since its launch. It was further shared by the investors that in 2017 and 2018, the returns stood at 17.67% and 18.89% respectively.
Recent News: HDFC Bank Share Price Rises 1% After ₹16,700 Crore Bond Fundraise
Investors Are Complaining About Withheld Redemptions
The reason for the investors going public was the redemption of the fund. According to the investors, the HDFC bank’s Carlisle fund redemption got stalled in 2020. Some of the investors who went public with their experience said that they were being promised an alternate investment option with good returns, in contrast to the returns on the traditional investment options like stocks and bonds.
Many of the investors who bought into the HDFC bank’s investment product were based out of the UAE and Bahrain through the bank’s overseas arm. As such, the investors thought that since they were being given the option to redeem regularly, there would be no issues. However, the investors are now claiming that the risks involved in the product were not highlighted by the HDFC bank when they purchased the product.
Related News: LIC Gets RBI Approval to Raise HDFC Bank Stake to 9.99%
HDFC Bank’s Comments Regarding The Issue
The HDFC bank claims that it has nothing to do with the performance of the fund as it was only facilitating the transactions. As per the media reports, the bank says that the fund was authorised and registered in a reputable jurisdiction and had a good track record of meeting its commitments to investors.
The bank has been in talks with Carlisle, legal advisors, and regulators to address the concerns of the investors. However, it clarified that these actions in no way indicated an admission of guilt or any wrongdoing on the bank’s part.
