Sebi appeals court stays fine on YES Bank in AT1 bonds case

MUMBAI: The Securities and Exchange Board of India’s (SEBI) appellate tribunal has stayed the regulator’s Rs 25 crore fine on in the case of miselling of additional Tier 1 (AT1) bonds to investors. The tribunal has given Sebi four weeks to respond and has posted the matter for a final hearing on July 30.

Last month, Sebi had found YES Bank and three of its employees including its then private wealth management head guilty of misselling these bonds to retail investors and had imposed a Rs 25 crore fine on the bank. The head of the wealth management were fined Rs 1 crore while two other employees were fined Rs 50 lakhs each.

YES Bank had challenged this order in the appellate tribunal.

In an order which was made public on Monday a two judge bench of Justice Tarun Agarwala and Justice MT Joshi have stayed the imposition of the fine on both bank and its employees provided it gives an undertaking on behalf of the bank as well as the three individuals that the bank would pay the penalty amount within two weeks from the date of the order.

The court has asked Sebi to file a reply within four weeks and also given time YES Bank to file a rejoinder to the Sebi reply three weeks after that before the final hearing which is slated for July 30.

The case relates to YES Bank’s reconstructuring scheme announced in March 2020 which allowed the bank to extinguish its outstanding Rs 8415 crore AT1 bonds. The write down was based on Basel III norms which allowed banks to extinguish these instruments in an emergency.

AT1 bonds are fixed income yielding securities without maturity and are supposed to be the first to absorb losses when a bank’s capital gets eroded. Investors buying them generally charge higher interest rates than normal bonds because of the risk involved in losing their money.

Investors have challenged the RBI decision in court saying that these risky instruments were sold by the bank directly to individuals as higher yielding fixed deposits without making them aware of the risk they are taking. The banking regulator has defended its write to allow extinguishing these bonds contending that investors knew what they were getting into.

Besides individual retail investors, institutional investors like Franklin Templeton Mutual Fund, Indiabulls Housing and 63 Moons Technologies have also been hit due to the write down of these bonds.

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