In an unprecedented move, the Yes Bank reconstruction scheme that was notified late on Friday, calls for investors holding over 100 shares of the bank locked in for three years, similar to the lock-in for banks picking up equity in the cash strapped lender.
This move may not go down well, especially among retail investors who bought Yes Bank shares in last few weeks looking for short-term gains, since the stock had touched record low.
The Reserve Bank took over the troubled private sector lender and superseded the board on March 5.
State Bank of India, the country’s largest lender, will pick up about 49 per cent stake in Yes Bank, while other financial institutions, including HDFC, Axis Bank, ICICI Bank and Kotak Mahindra Bank have also agreed to invest.
As per the reconstruction scheme, the investor bank shall not reduce its equity shareholding in Yes Bank below 26 per cent before completion of three years.
Similarly, other investors in Yes Bank will also not be able to sell more than 25 per cent of their shares for the same period.
“There shall be a lock-in period of three years from the commencement of this scheme to the extent of 75 per cent, in respect of shares held by existing shareholders on the date of such commencement,” the government notification says.
This lock-in period will not be applicable to shareholders holding less than 100 shares.
As of December 2019 end, individual share capital constituted around 48 per cent of the shareholding of Yes Bank. Mutual Funds also held a little over 5 per cent, while foreign portfolio investors held 15.17 per cent in Yes Bank.
“This (lock-in) is not something we have witnessed anytime in the past. It is negative,” said Sageraj Bariya, vice-president at East India Securities.
Analysts don’t rule out the possibility that some investors may choose to go to court against this move. However, Ajay Bodke, CEO at Prabhudas Lilladher supports the lock-in. He said that at a time even additional tier 1 bond holders of Yes Bank had been asked to write down their investments, equity investors also had to make some sacrifice.
“This plan is to rescue depositors. Small investors should lend shoulder to sacrifices made by large investors,” he said.
Typically, equity shares carry a risk of being wiped off first in a collapse, point analysts. Here though, there is no such write-off, only that just like the banks, these investors will also have to stay invested for longer.
“In previous instance like the collapse of Global Trust Bank, equity investors got practically nothing,” said Bariya, who feels that marquee investors backing Yes Bank should now bring stability to the lender.
Yes Bank shares have been falling for almost a year now. From a 52-week high of Rs 285.90 it touched on April 3, 2019, it hit a record low of Rs 5.55 on March 6, 2020. The stock has recovered some what since the RBI-led rescue plan was announced and closed at Rs 25.55 on Friday.