Yes Bank denies its executives mis-sold AT-I perpetual bonds

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26 Aug, 2025 12:21

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The ongoing court room drama over the contentious Additional Tier-I bond (AT-I) write-down by Yes Bank just got even more dramatic, with the bank denying allegations of mis-selling and asserting that investors were fully aware about the risks involved.

In the counter-affidavit filed in the Madras High Court recently, Yes Bank’s RBI-appointed managing director and chief executive officer , Prashant Kumar, submitted that investors purchased these perpetual bonds with “eyes open”.

“The claim of violation of natural justice is denied. The petitioner had purchased the AT1 bonds with eyes open, knowing all the risks attached with the purchase,” said Prashant Kumar. The petition was filed by 63 Moons Technlogies Ltd, one of the investors. The firm, founded by Jignesh Shah, who invested Rs 300 crore in 3,000 bond units.

Yes Bank wrote off the AT-I bonds worth Rs 8,415 crore, following its bailout in March, citing Basel provisions. This shocked investors, many of whom approached the Bombay High Court. Axis Trustee represents the bond holders. Alleged mis-selling is one of the complaints in the petition.
Moneycontrol has seen the copy of the petition and counter- affidavits.

What is this mis-selling all about?

Denying allegations of manipulation, Yes Bank said the petitioner’s claim is a matter that requires “some enquiry”. The petitioner alleges that officials of Respondent No. 3 (Yes Bank) had misled investors to peddle the AT-I perpetual bonds and were misled into buying these bonds based on misrepresentations. These statements are very vague and without any particulars, Kumar said in the affidavit.

“Who are these fficials, when were these statements/ misrepresentations made, and what kind of promises were made are all absent. I am not in a position to deal with any of these vague allegations except to deny them,” Kumar said.

Further, the affidavit says that none of the bank officials would have had any occasion to deal with the petitioner as the petitioner had purchased the bonds from the secondary market and not subscribed to them.
In its petition, 63 Moons had alleged that Yes Bank officials misled investors to peddle the bonds. “The investors were given the impression that the AT-I bonds were not only risk-free but also offered a higher return than fixed deposits. The bonds were marked as ‘Super Fixed Deposits” by the relationship managers of Yes Bank,” the company alleged. Describing the bonds as ‘Super FDs’ is a gross misrepresentation as it hides the risks inherent in the product, the petition said.

Earlier, in an email response to Moneycontrol, the company had declined to comment on the issue, saying the matter is in court.

AT-I bond write-down as per rules

Kumar said that the write-down was in accordance with the law and there are risks associated with this instrument. “Unfortunately, the risk events occurred and loss was occasioned. The petitioner now cannot claim protection from the court in respect of such investment decisions by claiming some special right,” said the Yes Bank counter-affidavit.
Yes Bank was bailed out by a bank consortium led by the State Bank of India (SBI) in March this year after a surge in bad loans and capital erosion. Investigations are on into the alleged corruption and financial irregularities by the former management under Rana Kapoor.

Investigators have found that Kapoor entered into a series of quid pro quo transactions and sanctioned large corporate loans ignoring the merit of the borrowers. Kapoor ran a large business empire under three family offices. He used the bank he co-founded for quid pro quo deals, Moneycontrol reported, on May 12.

Don’t blame us, says RBI

Earlier, in its counter-affidavit, the RBI used strong words while discarding the claims by the petitioner.

The RBI said that the action for writing-off has been rightly taken under the provisions of the contract between Yes Bank and AT-I bondholders, and, hence, there is no merit in the petitioner’s contentions.

“The whole purpose of writing-off the AT-I bonds is to ensure that the capital infused by the public sector i.e., SBI, and other investors should not be diluted. The bonds are a liability, and, hence, the same should be written off for the effective implementation of the Notified Scheme, which is made in the interest of the general public and to regain the confidence of the depositors,” the RBI said.

The RBI affidavit also said that the courts must be slow in interfering and exercising judicial review of the decisions of a private sector bank, which are contractual in nature by issuing a writ. The affidavit also said: “Prior to the advent of the financial difficulties of Yes Bank, the petitioner and other bondholders of Yes Bank have reaped high financial rewards on the AT-I bonds. The petitioners cannot, on the one hand, enjoy the benefit of a high interest rate/coupon rate by investing in such high-risk instrument, and, thereafter, in times of such failure, shift the onus of loss upon RBI”.