SEBI imposes Rs 2 cr penalty on former YES Bank MD Rana Kapoor in AT1 bond case

The Securities and Exchange Board of India (SEBI) has imposed a monetary penalty of Rs 2 crore on Rana Kapoor, the former managing director of Yes Bank for allegedly mis-selling Additional Tier 1 Bonds (AT1 bonds) to retail investors. According to the capital market regulator, Kapoor, who was the managing director of the bank from 2004 to 2019, instructed the then private wealth management team of the private sector lender to resell AT1 bonds from institutional investors to retail investors.

More importantly, the probe found that individual investors were not informed about the risks of investing in the bonds.

“The scope of the investigation was to ascertain whether the AT1 bonds of YBL (Yes Bank Limited) issued initially to institutional investors were miss-sold to retail investors by YBL officials and to ascertain whether the sale of AT1 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,” stated the 87-page order issued by SEBI.

“During the investigation, SEBI observed that under the instructions of Mr. Rana Kapoor… Mr. Vivek Kanwar, head of Private Wealth Management Team… Mr. Ashish Nasa and Mr. Jasjit Singh Banga, who were part of PWM Team at the relevant time facilitated (designed the process) reselling of AT1 Bonds of YBL, from institutional Investors to individual investors,” it added.

As per the SEBI notice, a total of 1,346 individual investors had invested approximately Rs 679 crore in the AT1 bonds, out of which 1,311 individual investors were existing customers of Yes Bank, who invested approximately Rs 663 crore in the bonds.

Further, 277 customers had existing FDs with Yes Bank that they prematurely closed to reinvest an amount totalling Rs 80 crore in these AT1 bonds, which were subsequently written down. The sale of AT1 bond started in 2016 and continued till 2019.

“Further, SEBI observed that during the process of reselling of AT1 Bonds, the individual investors were not informed about all the risks involved in subscription of AT1 Bonds as required,” stated the SEBI order.

The SEBI probe was triggered by multiple complaints that it received from investors of AT1 bonds in 2020 wherein some of the complainants alleged that they were told that the bonds are safer than fixed deposits or they are just like FDs with a five-year lock-in period.

“The individual customers of YBL were persuaded to shift their investments in Fixed Deposits to AT-1 Bonds. The AT-1 Bonds were offered to them as a super Fixed Deposit Product with high safety features, a higher rate of return, and a lock-in period of five years. The risk associated with such Bonds was never disclosed to the individual investors,” stated the SEBI show cause notice issued to Yes Bank, Kapoor, and three other individuals in October 2020.