Ordinary shareholders of Yes Bank are in for a rude shock.
The rescue plan for the beleaguered bank that was approved by the cabinet on Friday extends the three-year lock-in to them as well.
Only the truly small shareholders — who hold less than 100 shares — will be spared from this onerous condition.
The idea of a lock-in had first been floated with respect to the State Bank of India’s investment in the bank in order to provide some level of comfort to the bank’s customers and its shareholders.
The rescue plan proposes that SBI will invest 49 per cent in the bank but the three-year lock-in will only apply to 26 per cent of its holding.
The moratorium on the bank will be lifted next Wednesday (March 18) after which the bank’s customers will have unfettered access to their accounts and deposits.
While the lock-in of shares is not a new concept in the capital markets, this is perhaps the first time that such a restriction is being imposed on existing minority shareholders.
Experts feel the move will not only harm price discovery in the stock but will also have other implications as it could hamper mutual funds’ ability to flit in and out of the stock.
They do not rule out the possibility of the provision being challenged in courts.
“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, (a) shares held by existing shareholders on the date of such commencement, and (b) shares allotted to the investors under this scheme,” said a notification issued by the finance ministry on Friday.
J.N. Gupta, a former Sebi executive director and founder of proxy advisory firm SES, told The Telegraph that by imposing such a restriction, the notification was taking away the “basic property rights” of a shareholder.
“The existing (retail or institutional) investors have not done anything wrong to cause the current situation in the bank. Therefore, their property rights cannot be infringed. As existing shares have been left untouched in the scheme, their rights cannot be curtailed. In this case, you are harming the price discovery in the stock market by restricting liquidity,” he said.
Gupta added that there was no need for the government to impose such a rule as the transfer or sale of shares by an existing investor in the secondary markets will not hurt the bank.
“By selling the share in the market, it will not cause any harm to the bank as shares are not getting extinguished or the capital is not being withdrawn. Sale of shares is not like withdrawal of deposits which will hurt the bank,” Gupta said.
He pointed out that the clause could also affect mutual funds which have an exposure to the Yes Bank stock.
In a communication to the stock exchanges on Saturday, Yes Bank referred to the particular clause and said that all shareholders holding 100 or more shares are advised to exercise “utmost caution while dealing in the scrip of the bank”.
According to proxy advisory firm IiAS, as Yes Bank is being replaced in the Nifty from March 27, the lock-in could affect index funds.
“If index funds are not permitted to replace Yes Bank, they will no longer track the index, leading to tracking errors and other complications in performance management,” it said.
The notification also said that a new board would be formed that would be led by CEO and MD Prashant Kumar, the current administrator of Yes Bank.
Apart from Kumar, the reconstructed board of Yes Bank will have Sunil Mehta as its non-executive chairman and Mahesh Krishnamurthy and Atul Bheda as the non-executive directors.
Mehta is the former non-executive chairman of Punjab National Bank, while Bheda is a Mumbai-based chartered accountant.
