Rana Kapoor fined Rs2 crore by SEBI

8 Sep 2022 , 08:27 AM

Rana Kapoor, a former MD and CEO of Yes Bank, was fined Rs2 crore by the capital markets regulator Securities and Exchange Board of India’s (SEBI) on Wednesday for improperly selling the AT-1 bonds issued by the private sector lender. According to the SEBI order, he has 45 days to pay the fine.

The complaint concerns the bank’s personnel misrepresenting the AT1 bonds to individual investors. It was claimed that when selling the AT-1 (Additional Tier-1) bonds on the secondary market, the bank and certain employees failed to disclose the risk to investors. AT1 Bond sales began in 2016 and ran through 2019.

The markets regulator noted in its 87-page judgement that Kapoor was in charge of all operations connected to the secondary sale of AT-1 bonds, receiving regular briefings from the team and providing them additional orders to boost sales, putting pressure on the officials to raise the sales.

It further claimed that he was accountable for misrepresenting Yes Bank Ltd. (YBL) AT-1 bonds to individual investors and concealing important facts.

According to SEBI, he put pressure on members of the private wealth management team to come up with a cunning plan to sell the AT-1 bonds to gullible YBL/individual investor clients.

According to the regulator, “Noticee, as the MD and CEO of the YBL at the relevant time, was responsible for the acts of YBL and officials of the PWM (Private Wealth Management) team in the reckless sale of AT-1 bonds to individual investors without adequate safeguards and misstatements/suppression of material facts regarding AT-1 bonds to the customers.”

SEBI said that Kapoor breached the PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) rules through these actions and as a result assessed him a Rs2 crore fine.

After determining that the lender had misrepresented the AT-1 bonds by comparing them to fixed deposits (FDs) without disclosing the bonds’ inherent risks, the regulator penalised Yes Bank and later officials of the private wealth management team in April of last year. This was done in an effort to discourage investors from purchasing these risky bonds.

According to the show cause notice, 1,346 individual investors had purchased around Rs679 crore worth of AT-1 bonds, and 1,311 of these investors were already regular clients of YBL, who purchased approximately Rs663 crore worth of these bonds.

Yes Bank issued AT-1 bonds in the form of debentures in December 2013, December 2016, and October 2017, after reconstituting its board of directors and injecting new capital in 2020. In 2020, the bank was revived in part by writing off these bonds.

SEBI looked into the situation to see if any regulatory standards had been broken when these AT-1 bonds of Yes Bank were sold to retail investors between December 1, 2016, and February 29, 2020.

The action was taken as a result of many complaints from investors who purchased the bank’s AT-1 bonds.

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