The market regulator has slapped a penalty of Rs 25 crore on Yes Bank Ltd for fraudulently selling additional tier-I bonds worth over

Rs 8,400 crore to retail investors that were eventually written off when a State Bank of India-led consortium put together a rescue package in March last year for the failed bank.

The Securities and Exchange Board of India passed the order on a batch of petitions filed by retail investors in these bonds who were hoping for some redress.

Yes Bank said it would move the Secutities Appellate tribunal against the verdict.

AT-1 bonds are unsecured bonds with perpetual tenure and banks float them to shore up their core capital.

The market regulator also imposed penalties on three officials of the bank at that time: Vivek Kanwar, who was the head of Yes Bank’s private wealth management team, and two other officers Ashish Nasa and Jasjit Singh Banga. The order imposes a penalty of Rs 1 crore on Kanwar and

Rs 50 lakh each on Nasa and Banga.

They have been directed to pay the penalty within 45 days of the receipt of the order. If they fail to do so, proceedings would be initiated against them to recover the penalty with interest thereon.

The penalty amount will in all probability flow into the market regulator’s investor protection fund.

The order does not provide any repayment relief to the investors who filed the petitions — a position that is consistent with the stand that the Reserve Bank of India has taken in several cases filed by other investors in the Bombay and Madras high courts as well as the Supreme Court.

The RBI’s stand has been that AT-1 bonds carry an inherent risk and fall under the terms of the Basel-III regulations issued by the central bank in 2015.

Under these rules, AT-1 bonds are required to absorb losses at specified trigger points and at the point of non-viability.

Sold as super FDs

Yes Bank, which was led at that time by the bank’s now-jailed promoter Rana Kapoor, had sold the AT-1 bonds between 2016 and 2019.

Sebi said the proceedings against Kapoor “will be conducted separately”.

The investors had claimed that these bonds had been mis-sold as super-fixed deposits (FDs) which carried a high rate of interest and virtually no risk. They had told investors that these bonds carried a credit rating of AA, which stands for high safety.

The officials argued that they had sold the bonds on the instruction of Rana Kapoor and had not collected any fee from the investors. They also denied selling the bonds as super FDs to high net worth individuals. The officers said they could not have anticipated the collapse of the bank during their tenure or that the banking regulator would allow the writeoff of the bonds, which was unprecedented.

The Sebi order rejected the argument by the officers and held them responsible for creating a verbal sales pitch document that regional branch managers used to push the sale of these bonds. It also said the term sheet documenting the risks were never shared with the investors.