Yes Bank Rescue: Lock-in norm may invite legal tussle

New Delhi : The government decision to lock-in investments of all investors, including existing ones, holding more than 100 shares in Yes Bank may create room for a legal tussle, with analysts suggesting that minority shareholders of the private sector bank could approach the courts against this differential treatment.

As per the reconstruction scheme for the Yes Bank notified by the government, apart from State Bank of India (SBI) and other new private investors picking up equity in the cash strapped bank, all existing shareholders who are holding 100 or more shares will also face a three-year lock-in for their 75 per cent investment.

"It is unprecedented that the government scheme is disallowing existing shareholders to sell their stock and that too with retrospective effect. This could be challenged by minority shareholders in court.

But the idea of the scheme to ensure long term liquidity in the bank so that depositors' interests are protected. Also, the move would prevent speculative trading in Yes Bank stock that is also a reason for its downfall," said a banking sector analyst asking not to be named.

Public shareholding in Yes Bank is 91.67 per cent with individuals having investment up to Rs 2 lakhs constituting 43.66 per cent of the Bank's shareholding. Another 4.30 per cent is held by individuals having share capital in excess of Rs lakhs. Mutual Funds hold 5.09 per cent in Yes Bank while Life Insurance Corporation (LIC) is holding 8.06 per cent equity.

"Yes Bank has a large retail investor base that may go jittery with the lock-in period. But with SBI and other banks joining to rescue the private sector lender, bank's valuation would grow going ahead and investors could exit later without losing," said another banking sector expert.

The central government on Saturday notified reconstruction scheme for Yes Bank that has raised its authorised capital to Rs 6,200 crore.

Country's largest bank State Bank of India is coming in with an investment of Rs 7,250 crore as anchor investor while other private banks -- HDFC, Kotak, Axis, ICICI together have committed Rs 3,100 crore towards equity of the cash strapped bank. More investors are likely to join soon.