The Securities and Exchange Board of India (SEBI) has enforced a penalty of Rs 2 crore on Rana Kapoor, the Former Chief Executive of Yes Bank, for mis-spelling the lender’s AT1, i.e. Additional Tier-1 bonds to retail investors. In 2020, the regulator said he received several complaints from investors about the AT1 bonds allotted by Yes Bank to retail investors. It inspected the AT1 bonds sale by Yes Bank from December 1, 2016, to February 29, 2020.

At the time of the investigation, it was witnessed that following the instructions of Rana Kapoor served as the Managing Director of the bank from 2004 to January 31, 2019, the senior officials of the Private Wealth Management Team simplified the resale of AT1 bonds of Yes Bank from institutional investors to retail investors. Besides, it was also observed that retail investors weren’t aware of all the risks subjected to the subscription of these bonds during the resale process.

Individual investors were delimited to participate in the primary market during the AT1 bond issuance. Hence, the product should not have been sold to them following the secondary market route, SEBI detected. Individual investors alleged that they weren’t provided with the info memorandum by Yes Bank before accepting investments in the AT1 bonds. “The AT1 bonds were offered as a super secure deposit Product containing high safety features, high rate of return, and a lock-in period of five years. The risk subjected to such bonds was never disclosed to the individual investors,” SEBI said.

In March 2020, Yes Bank told stock exchanges the decision to fully write down its Basel III-compliant AT1 bonds accumulating to Rs 8,415 crore. On October 28, 2020, SEBI issued a show cause notice contending that AT1 bonds being risky and volatile, should not be sold to individual investors.

The regulator also claims that 1,346 individual investors invested about Rs 679 crore in the AT1 bonds, out of which 1,311 individual investors were found in the bank’s existing customers. The latter invested about Rs 663 crore in AT1 bonds. “Considering the large investors’ concern obstructed, achieving the quantum of sales through this scheme. Thus, the SEBI’s adjudicating officer imposed a penalty on the CEO, finding it a deterrent.