Capital markets regulator Sebi on September 7 imposed a penalty of ₹2 crore on former Yes Bank MD and CEO Rana Kapoor for mis-selling the private sector lender’s AT-1 bonds.
He has been directed to pay the fine within 45 days, the Securities and Exchange Board of India (Sebi) said in its order.
The case relates to mis-selling of the bank’s AT1 bonds to retail investors by its officials. It was alleged that the bank and certain officials did not inform investors of the risk involved while selling the AT-1 (Additional Tier-1) bonds in the secondary market.
The sale of AT1 bonds started in 2016 and continued till 2019.
In its 87-page order, the markets regulator found that Kapoor was overseeing the entire activities relating to the secondary sale of AT-1 bonds, taking regular updates from the team and giving them further instructions to increase the sales, thus creating pressure on the officials to ramp up the sales.
It further said that he was responsible for acts of suppression of material facts, manipulation and mis-selling of Yes Bank Ltd (YBL) AT-1 bonds to the individual investors.
According to Sebi, he pressurised officials of the private wealth management team to devise a devious scheme to dump the AT-1 bonds on hapless customers of YBL/individual investors.
“Noticee, as the MD and CEO of the YBL at the relevant time was responsible for the acts of YBL and officials of PWM [Private Wealth Management] team in the reckless sale of AT-1 bonds to individual investors without due safeguards and misstatements/ suppression of material facts regarding AT-1 bonds to the customers,” the regulator noted.
Through such acts, Sebi said that Kapoor has violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms and accordingly imposed a penalty of 2 crore on him.
The regulator, in April last year, penalised Yes Bank and then officials of the private wealth management team, after finding that the lender had misrepresented the AT-1 bonds by comparing them with fixed deposits (FDs) without disclosing the inherent risks associated with the bonds and thereby manipulated the investors into buying such risky bonds.
As per the show cause notice, 1,346 individual investors had invested about ₹679 crore in the AT-1 bonds and out of them, 1,311 individual investors were existing customers of YBL, who invested about ₹663 crore 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 ₹80 crore in the AT-1 bonds, which were subsequently written down, as per the regulator.
Yes Bank, whose board of directors were reconstituted and fresh capital was infused in 2020, had issued AT-1 bonds in the nature of debentures in December 2013, December 2016 and October 2017. These bonds were written down as part of reviving the bank in 2020.
Sebi investigated the matter to ascertain whether there was any violation of regulatory norms in respect of selling these AT-1 bonds of Yes Bank to retail investors during the period from December 1, 2016, to February 29, 2020.
The move came after multiple complaints from investors who had invested in the AT-1 bonds issued by the bank.
Following the Sebi’s direction, the bank approached Securities Appellate Tribunal (SAT), which granted an interim stay on the capital market regulator’s order in May last year. The tribunal had noted that the central government imposed a moratorium on Yes Bank and appointed an administrator, superseding the board of directors.
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