AT-1 bonds case: Sebi slaps Rs 25 cr fine on Yes Bank; lender to appeal against order

Markets watchdog Sebi on Monday imposed a fine of Rs 25 crore on Yes Bank for mis-selling AT-1 bonds in the secondary market few years ago, saying there was a ''devious scheme'' to dump the bonds on the lender's hapless customers.

Besides the lender, a fine of Rs 1 crore has been slapped on on Vivek Kanwar, who was the head of the bank's private wealth management team and Rs 50 lakh each on Ashish Nasa and Jasjit Singh Banga, who were part of that team at the time of violation. All of them have been directed to pay the penalty in 45 days.

In a late evening filing to stock exchanges, Yes Bank said it would appeal against the Sebi order before the Securities Appellate Tribunal.

Yes Bank, whose board of directors were reconstituted and fresh capital was infused in 2020, had issued AT-1 (Additional Tier-1) bonds in the nature of debentures in December 2013, December 2016 and October 2017.

The AT-1 bonds, issued in 2016 and 2017, were written down as part of reviving the cash-strapped bank last year.

In a 61-page order, Sebi said that Yes Bank Ltd (YBL) and certain officials devised the ''devious scheme to dump the AT-1 (Additional Tier-1) bonds on their hapless customers''.

To make institutional investors subscribe to more capital of Yes Bank, the noticees devised the plan to down sell the AT-1 bonds, held by the institutional investors, to individual investors, including their customers. In this regard, they highlighted the AT-1 bonds as earning high interest vis-a-vis the Fixed Deposits (FDs), Sebi said.

Noticees refers to Yes Bank, Kanwar, Nasa and Banga.

Apart from them, Sebi had also issued an adjudication show cause notice to the bank's former Managing Director Rana Kapoor, who is presently in jail.

Adjudication proceedings in respect of Kapoor would be conducted separately so that he has reasonable opportunity to contest the allegations of fraudulently selling the bonds to individuals investors levelled against him in the show cause notice and is able to make a proper representation of the case, the regulator said in the latest order.

While imposing fines on the bank and the three individuals, Sebi said that during the process of selling of the AT-1 bonds, individual investors were not informed about all the risks involved in subscription of these bonds.

''The omission on the part of the noticees to forward relevant documentary information to the investors/ customers indicates suppression of material facts so as to create a misleading appearance of the AT-1 bonds in order to lure the investors/ customers to invest in them,'' it said.

As per Sebi, misrepresentation perpetrated by them influenced the investors/ customers of Yes Bank and they were lured into purchasing the bonds. In fact, some of the customers also closed the FDs and used the money to buy the AT-1 bonds.

All these actions amount to fraud perpetrated by them on the investors, Sebi said.

''The subsequent developments such as the financially unviable state of YBL leading to the writing down of the AT-1 bonds also clearly indicate that noticees were clearly aware of the risky nature of AT-1 bonds. Despite that, they aggressively engaged in the activity to down sell these bonds to the investors/ customers,'' it noted.

By indulging in such activities, Sebi said the noticees violated the provision of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices).

In the filing to stock exchanges late Monday, Yes Bank said it ''shall be preferring an appeal before the Hon'ble Securities Appellate Tribunal'' against the Sebi order.

The bank also noted that the matter pertaining to written down of AT-1 bonds is sub-judice before various high courts and a transfer petition is pending before Supreme Court.

However, in the meantime, Sebi had issued a show cause notice inter-alia alleging mis-selling of AT-1 bonds and that a penalty of Rs 25 crore has been imposed on the bank for the alleged misselling of the bonds in the secondary market, it said in the filing.

As per Sebi's show-cause notice, 1,346 individual investors had invested about Rs 679 crore in the AT-1 bonds and out of them, 1,311 individual investors were existing Yes Bank customers, who invested about Rs 663 crores in these bonds.

Further, 277 customers had FDs with the bank and they prematurely closed their existing FDs and reinvested an amount to the extent of Rs 80 crore in the AT-1 bonds, which were subsequently written down, according to the regulator.

Sebi had received multiple complaints from investors, alleging misrepresentation by noticees in selling the AT-1 bonds. Thereafter, the watchdog conducted an investigation into the matter to ascertain whether there was any violation of regulatory norms in respect of selling of the AT-1 bonds to retail investors by the noticees during the period from December 1, 2016 to February 29, 2020.

In March 2020, the finance ministry on the recommendation of the Reserve Bank of India (RBI) imposed a moratorium on Yes Bank and appointed an administrator, superseding the board of directors.

Later, a restructuring scheme for Yes Bank was implemented whereby SBI and other investors made equity capital infusion of Rs 10,000 crore into the lender.

AT-1 bonds worth Rs 8,415 crore issued by the bank in December 2016 and October 2017 were also written down.