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How Yes Bank’s relationship managers sold its AT-1 bonds to retail investors

Many of the investors are guilty of believing that the bonds are as safe as FDs and will give better returns

Given the low ticket size of ₹10 lakh, senior citizens, on the look out to invest their retirement corpus for better returns but no added risk, were the perfect scapegoats

Sixty-five-year-old Harish, a retired HR manager, and his wife Saroj, both based in Delhi, woke up on 6 March to a rude shock. About a third of their retirement pot had gone up in a puff of smoke as Yes Bank was placed under administration by the RBI and its perpetual debt (AT-1 bonds) became worthless.

The couple had been sold Additional Tier-1 (AT-1) bonds by their relationship manager (RM) at Yes Bank in Dwarka, New Delhi. Much of the money had come from Harish’s matured Employees’ Provident Fund corpus which was initially parked in a fixed deposit. While the government has assured Yes Bank depositors that they will not be penalised, a draft RBI resolution for Yes Bank envisaged a complete write down of the value of AT-1 bonds. For the bondholders, this means a complete loss of principal. The couple’s son, Saurabh who works in IT and had vetted the transactions also felt a heavy blow. “The interest rate on the Yes Bank bonds at 9.5% was slightly higher than the rates on fixed deposits at the time and the troubles with Yes Bank were not on the horizon,” he said. “The relationship manager asked my father to break his FD and divert the money to these bonds as they were yielding a higher return,” he added. According to Saurabh, at no point did the relationship manager explain the risks. “My father was told that he would get stable determinable annual payments like FDs and will get capital back at the end of the period just like FDs,” added Saurabh.


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