Yes Bank AT1 Bonds: SEBI Imposes Rs2 Crore Penalty on Rana Kapoor
Moneylife Digital Team 07 September 2022
The Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs2 crore on Yes Bank;s former managing director (MD) and chief executive officer (CEO) Rana Kapoor in the additional tier-1 bonds (AT-1 bonds) mis-selling case. The SEBI order held him responsible for the misleading marketing of the Yes Bank AT-1 bonds. Mr Kapoor needs to pay the amount within 45 days, the regulator said in its order.  The order has been passed under the provisions of Section 15HA of the SEBI Act. 
The case pertains to Yes Bank executives allegedly selling AT-1 bonds to investors under the guise of super FDs (fixed deposits), promising higher returns and the safety of a typical bank FD.
Mr Kapoor was at the helm and was then overseeing the entire activities relating to the secondary sale of these AT-1 bonds, taking regular updates from the team and giving them further instructions to expedite/ increase sales, thus creating pressure on the officials to ramp up sales. The regulator, thus, found him responsible for misrepresentation/ suppression of material facts, manipulation and mis-selling of AT-1 bonds to the individual investors. He “pressurised officials to devise devious schemes to dump the AT-1 bonds on hapless Yes Bank customers,” the SEBI order said.
SEBI had received several complaints from investors in AT-1 bonds issued by Yes Bank. It conducted an investigation and found that AT-1 bonds of Yes Bank were sold to retail investors between 1 December 2016 and 29 February 2020. The scope of the investigation was to ascertain whether the AT-1 bonds of YBL issued initially to institutional investors were miss-sold to retail investors by YBL officials and to ascertain whether the sale of AT-1 bonds by institutional investors which sold such bonds to retail investors through YBL resulted in violations of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as ‘PFUTP Regulations’), during the investigation period.
During the investigation, SEBI observed that under the instructions of Mr Kapoor for the period between 2004 and 31 January 2019, Vivek Kanwar, head of the private wealth management (PWM) team, Ashish Nasa and Jasjit Singh Banga, who were part of the PWM Team at the relevant time facilitated (designed the process) reselling of AT-1 Bonds of YBL, from institutional investors to individual investors. Further, SEBI observed that during the process of reselling AT-1 bonds, the individual investors were not informed about all the risks involved in the subscription of AT-1 bonds as required. Therefore, it was alleged that the AT-1 Bonds were mis-sold to the individual investors and the YBL and its officials, including Rana Kapoor, violated provisions of the SEBI Act and PFUTP regulations.
SEBI noted that 1,346 individual investors had invested about Rs679 crore in the AT-1 bonds. Out of the total investors, 1,311 were existing customers of Yes Bank and invested around Rs663 crore in these AT-1 bonds. 
As many as 277 customers had existing FDs with Yes Bank and they prematurely closed them and reinvested about Rs80 crore in these AT-1 bonds which were subsequently written down.
SEBI pointed out that Yes Bank had also failed to conduct risk-profiling of individual clients, especially senior citizens aged 70, 80 and 90 years. It added that there was a push from the chief executive officer (CEO) of the Bank to down sell AT-1 bonds, which led the private wealth management team to recklessly sell the bonds to individual investors. 
“Considering the large number of investors impacted and the quantum of sales achieved through this scheme, I am of the opinion that this act of Noticee deserves penalty commensurate with the severity of violation and would be a deterrent," Soma Majumder, adjudicating officer, said in the order.
AT-1 bonds came under the long shadow in the wake of the Yes Bank event where the entire value of the Bank’s AT-1 bonds (Rs8,415 crore) was written-off when the rescue package led by the State Bank of India (SBI) was announced in March 2020; investors in these bonds lost all their money. Several distributors and agents were wrongly advertising these bonds with claims that “AT-1 bonds are better than fixed deposits.” Hundreds of retail investors had complained about the mis-selling of these instruments. 
It may be recalled that institutional investors such as mutual funds including Reliance Nippon, and individuals had put as much as Rs8,415 crore in Yes Bank's AT-1 bonds, which are perpetual bonds without any maturity date. These securities were written down to zero in March 2020 as part of a government-approved restructuring plan for the insolvent lender, resulting in investors losing money. The AT-1 bondholders have approached various courts on the grounds these securities were illegally sold tothem and, hence, they need to be compensated by the Bank. The case is on-going at Bombay High Court. Both Yes Bank and banking regulator Reserve Bank of India (RBI) have so far maintained that the AT-1 bond write-off is as per Basel III rules 
Reliance Nippon Life Asset Management had one of the biggest exposures to Yes Bank's AT-1 bond. The Anil Ambani-led group had borrowed from Yes Bank to the extent of over Rs12,000 crore, according to news reports. In April 2021, Reliance Infrastructure had sold its headquarters in Santacruz, Mumbai to Yes Bank for Rs1,200 crore. 
In October 2020, rules were tightened for fresh issues of AT-1 bonds issued by banks, to restrict retail investors from investing in them. The new rules protect retail investors from investing in these highly risky instruments. 
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9 months ago
Poor rana is being thrashed now and not when he was sharing dias with who is who in power hierarchy
9 months ago
The fine is OK but what about the retail investors who held one bond each.The overall regulator of the banks is the RBI and they should be held accountable.
9 months ago
Unlike US where they know justice system will levy huge penalties and cant escape and thus reach settlement, in India they will spend 2 cr on lawyers to avoid paying 2 cr penalty and our courts will oblige delaying case for ages.
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