Markets regulator Securities and Exchange Board of India (SEBI) on Monday imposed a fine of Rs 25 crore on YES Bank Ltd (YBL) for misselling the lender's Additional Tier 1 (AT-1) bonds to customers between December 2016 to February 2019.
The regulator also levied a fine of Rs 1 crore on Vivek Kanwar, who was the head of the bank's Private Wealth Management (PWM) team, and Rs 50 lakh each on Ashish Nasa and Jasjit Singh Banga, who were part of the PWM team.
In its order, SEBI said the AT-1 bonds were sold to the customers of YBL by the noticees without adopting adequate safeguards to protect their interests and without sufficient due diligence. Noticees collectively refers to YBL, Kanwar, Nasa and Banga.
"...the noticees deliberately misrepresented the AT-1 bonds as being more attractive than the FDs of YBL, by suppressing the inherent risks of these bonds and distorting facts to mislead their customers and manipulated them into investing in these risky bonds. Through the aforesaid scheme and deliberate acts of misrepresentation and manipulation by the noticees, some of the customers were even influenced to switch their investments in FDs of YBL to these risky AT-1 bonds," it said.
On March 5, 2020, the government, acting on the recommendation of the Reserve Bank of India (RBI), had imposed a moratorium on YBL and imposed restrictions on the banking activities to be carried out by it. It had also appointed an administrator for the bank, superseding its board of directors. The administrator had written down YBL's AT-1 bonds of over Rs 8,000 crore, which resulted in loss to the investors in the bond, many of whom were the bank's customers.
As per the show cause notice issued by SEBI, 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 customers of YBL, who invested about Rs 663 crore in these bonds.
Further, 277 customers had fixed deposits (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.
During the process of selling of AT-1 bonds, individual investors were not informed about all the risks involved in subscription of these bonds, SEBI said.
"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 added.
By indulging in such activities, SEBI said, the noticees violated the provisions of Prohibition of Fraudulent and Unfair Trade Practices regulations.
Yes Bank's then Managing Director Rana Kapoor was also named in the case, but the regulator granted him additional time to respond to the show cause notice issued by it as he is currently imprisoned in a jail in Navi Mumbai.