Indian bank fined for misselling its riskier debt to individuals

Bloomberg

India’s markets regulator fined Yes Bank Ltd. for claiming that riskier bonds it sold to individual investors were as safe as term deposits.
Securities & Exchange Board of India ordered Yes Bank to pay $3.3 million after it “deliberately misrepresented” the Additional Tier 1 notes, “by suppressing the inherent risks of these bonds and distorting facts to mislead their customers.”
Yes Bank’s AT1 bonds, which are hybrid securities that can be written off if the issuer breaches certain triggers, got wiped out in the biggest bailout of an Indian lender last year.
Mumbai-based Yes Bank will appeal Sebi’s order before the Securities Appellate Tribunal, the lender said in an exchange filing.
The regulator also raised other points regarding bond sale disclosures and documentation at a time when there’s been a rush by retail investors to buy the notes of weaker borrowers. Sebi last month also made it more onerous for mutual funds to hold AT1 securities in a bid to protect individual buyers.
Yes Bank “compared the AT1 bonds with fixed deposit on rate differentials only, but omitted the risk differentials, which led the investors to look only at the higher interest rate of these bonds without realizing these bonds have inherent risk,” Sebi said in the adjudication order.
Sebi also fined three of Yes Bank’s former and current executives, while co-founder and former Chief Executive Officer Rana Kapoor is facing a separate probe on matters including this.