FPIs, Institutional Investors Flag Concerns Over Yes Bank Trading Curbs Without Notice

A sudden decision to restrict trading in shares of Yes Bank Ltd. to a maximum 25 percent of holdings over the weekend has left institutional and other large investors, including foreign portfolio investors, flummoxed as many of them might not be able to meet liquidity needs.

While shares of Yes Bank rose sharply by more than 50 percent to hit a high of Rs 40.40 a piece at the BSE on Monday following a restructuring scheme notified by the government on Saturday, one particular clause to restrict trading in the bank's shares left many investors concerned.

Several market observers, including senior fund managers, said foreign portfolio investors and other institutional investors have raised concerns regarding the difficulty in liquidating their positions in the cash and derivatives segment because of this scheme.

Since this has been done without any prior notification to the market, it has created a major problem for mutual funds and other investors with significant positions in the derivatives segment as to how would they be able to meet their obligations because of derivatives being required to be physically settled.

Under the scheme, if you hold 100 or more shares of Yes Bank, you can now sell a maximum of 25 percent of your holdings (as on Friday, March 15, 2020) and the 75 percent will be under lock-in for three years.

While this message was conveyed to the investors by their brokers by Monday morning, many are finding it difficult to meet their liquidity needs and are planning to raise the issue with the concerned authorities.

Several brokers, including HDFC Securities, also told investors that any trades in Yes Bank would be possible only through the desktop and not through mobile trading apps.

They brokers have also circulated messages that if an investor has open e-margin position in Yes Bank, it will be converted to delivery on Monday and the investors have been asked to keep sufficient funds to avoid any shortfall.

As on December 2019, more than 16 lakh non-promoter shareholders held Yes Bank shares (amounting to a total holding of nearly 92 percent in the bank).

These included 295 institutional investors -- 25 mutual fund schemes, 9 alternate investment funds, 238 FPIs, 4 financial and banking institutions, 8 insurers and 11 qualified institutional buyers -- together holding nearly 30 percent stake.

Besides, a large number of individual shareholders together had nearly 49 percent stake or more than 121 crore shares.

Also, the troubled private lender will now be dropped from benchmark index Nifty 50, banking index Nifty bank and other Nifty indices from March 19, as against the earlier announced date of March 27, said NSE Indices, a subsidiary of the National Stock Exchange.

In light of the recent developments relating to Yes Bank and its reconstruction scheme, NSE Indices' Index Maintenance Sub-Committee has decided to accelerate the removal of Yes Bank from Nifty 50 and Nifty Bank and also remove it from all Nifty equity indices from Thursday, March 19, it added.

Besides Nifty 50 and the Nifty bank index, Yes Bank will also be removed from Nifty 100 and Nifty 500, among other indices.

On Saturday, the government had notified the Yes Bank Limited Reconstruction Scheme, 2020, a day after the union cabinet's approval.

Under the scheme, State Bank of India will invest for 49 percent equity in Yes Bank and other investors are also being invited.

There will be a three-year lock-in period for all the investors. However, the lock-in period for SBI would be only for the 26 percent of the shareholding.

The moratorium, which was placed by Reserve Bank of India on March 5, restricting withdrawal to Rs 50,000 per account, will also be lifted by 6 p.m. on Wednesday.