RBI Imposes Rs 25 Cr Fine On YES Bank For Fraud In Selling Bonds To Investors

Yes Bank has been fined a sum of 250 million rupees ($3.33 million) by SEBI, the market regulator of India. 

Read on to find out why Yes Bank has been fined with this amount.

SEBI Fines Yes Bank 250 Million For Representing Bonds As Fixed Deposits

Securities and Exchange Board of India (SEBI) has instructed Yes Bank to pay  250 million rupees as a fine for indulging in fraudulent selling of certain risky bonds to mom-and-pop investors without giving any necessary warnings and risk assessments.

As per the order issued by the SEBI, Yes Bank has “deliberately misrepresented” its so-called AT1 bonds as more attractive than the fixed deposits. The risks were kept hidden and the bank has also been accused of distorting facts and fooling customers into investing in these risky assets.

According to the Sebi order, Yes Bank Ltd (YBL) and certain officials devised the “devious scheme to dump the AT-1 (Additional Tier-1) bonds on their hapless customers.”

AT1 bonds have quasi-equity characteristics and also carry higher interest rates than more senior debt. This results in investors risk losing their investment if the funds are needed to boost the capital of the bank.

Under the revival plan for the Yes Bank, which is currently under huge debts, AT1 bonds were fully written down, which had a negative impact on many of the retail investors. In March 2019, Yes Bank had about 88 billion rupees ($1.2 billion) in AT1 capital.

Yes Bank Denies; Risk Factors Were Communicated To Investors

A regulatory filing by the Yes Bank states, “the Bank shall be preferring an appeal before the Hon’ble Securities Appellate Tribunal.”

There also have been multiple investors who have had to approach the Bombay and Madras High Courts to argue against the banking regulator’s decision. Retail customers of the bank had also complained to the market regulator against Yes Bank. Reports are that they complained against the bank indulging in manipulative, fraudulent and unfair trade practices.

However, Yes Bank has said in its submission that the risk factors were communicated to investors either orally or in written documents.

Yes Bank has also stated that they believed that there was no need to assess the risk profile of prospective investors because AT1 bonds were considered low risk as there was no indication at the time that the bank would fail and the bonds would be required to be written down.