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Sebi imposes Rs 25 crore penalty on YES Bank in AT1 bonds case

Sebi has asked the bank to pay the penalty amount within 45 days of receipt of the notice.

April 12, 2021 / 11:11 PM IST
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File image

Market regulator, Securities and Exchange Board of India (Sebi), on April 12 imposed a monetary penalty of Rs 25 crore on private sector lender, YES Bank in the additional tier 1 bonds (AT1) misselling case.

Sebi has asked the bank to pay the penalty amount within 45 days of receipt of the notice.

Besides YES Bank, Sebi has also imposed penalties on Vivek Kanwar (Rs one crore), Ashish Nasa (Rs 50 lakhs) and Jasjit Singh Banga (Rs 50 lakhs). Kanwar was the Head of YES Bank’s private wealth management team. Other two were also former executives of YES Bank.

The case pertains to YES Bank executives allegedly selling AT1 bonds to investors under the guise of Super FDs promising higher returns and safety of a typical bank FD. YES Bank, which was bailed out in March last year by a bank consortium led by State Bank of India (SBI), wrote off Rs 8,415 crore of AT1 bonds as per the framework of the YES Bank reconstruction scheme.

Following this, investors moved Courts alleging that they were sold these bonds by the bank on false assurances and hence the investors need to be compensated by the bank. The case is ongoing in Bombay High Court. Both YES Bank and the RBI have so far maintained that the AT1 bond write off is as per the Basel III rules. Besides retail investors, institutional investors such as Indiabulls, 63 Moons Technologies have also moved courts.


After the YES Bank reconstruction scheme was notified by the government, there was a confusion in the market on March 14 on whether the AT1 bonds will be honoured or extinguished as said in the draft reconstruction scheme made public by RBI. But YES Bank’s RBI-appointed administrator Prashant Kumar later clarified that these bonds will be written down fully, under the agreed reconstruction scheme.

This is because the reconstruction scheme was formed after the RBI invoked Section 45 of the Banking Regulation Act, 1949, which arises when the bank is deemed to be non-viable or approaching non-viability, enabling the write-down of certain Basel III AT1 Bonds, Kumar said.

The petitioners have argued that the total write down of AT1 bonds and treating these instruments below equity is not fair.

What did Sebi probe find?

Sebi has imposed penalties under the Section 15-I of the Sebi Act. If the penalties are not paid within 45 days, Sebi will initiate recovery process, the order issued by adjudicating officer, Soma Majumdar, said.

After an investigation, Sebi issued show cause notices to all parties in October, 2020. The Sebi investigation has observed that YES Bank officials didn’t follow the proper procedures while selling these bonds to investors including not sharing the term sheets with the individual investors.

“The investigation also observed that the down-sell of AT1 bonds were not negotiated between buyers and sellers individually. The same as facilitated by YES Bank for around 1300 individual investors most of which were existing customers of YES Bank,” the Sebi investigation observed.

Sebi further observed that YBL represented AT1 Bonds as Super FD and ‘as safe as FD’. Also, no confirmation was taken from the investors with respect to their understanding of the features and risks associated with the bond, the investigation observed.

The investigation also observed that the push from the MD &CEO of YBL to down sell the AT1 Bonds which led the private wealth management team to recklessly sell the bonds to individual investors.

After examining the responses, Sebi observed that “AT1 Bonds were sold to the customers of YBL without adopting adequate safeguards to protect their interests and without sufficient due diligence,” Sebi order said and that the allegations that YES Bank sold AT1 bonds to investors, representing as Super FDs, is established.

In the replies to Sebi notices, YES Bank denied that it engaged in misselling of AT1 Bonds to investors.
Moneycontrol News
first published: Apr 12, 2021 06:50 pm

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