Government notifies Yes Bank reconstruction scheme
Under the terms of the notified scheme, the RBI moratorium will now be lifted at 6 p.m. on 18 March.
The government on Saturday notified the scheme of reconstruction for cash-strapped Yes Bank Ltd, paving the way for the lender to resume full operations.
The private sector bank has been put under a moratorium by the Reserve Bank of India since 5 March which has restricted deposit withdrawals. Under the terms of the notified scheme, this moratorium will now be lifted at 6 p.m. on March 18.
According to the government notification, Yes Bank’s authorised share capital will be revised upwards from Rs 1,100 crore to Rs 6,200 crore. The number of total equity shares will stand altered to 3,000 crore of Rs 2 each aggregating to Rs 6,000 crore. Authorised preference share capital shall continue to be Rs 200 crore.
The investor bank, which in Yes Bank’s case is the State Bank of India, will pick up to 49% of the equity, while private investors will be allowed to buy the rest. SBI will have to hold at least 26% stake in the private bank for a minimum period of three years.
Similarly, the other investors will also be mandated to have a similar lock-in period for 75% of their investment in the bank. As per the notification, this lock-in will also be for all existing shareholders who are holding 100 or more shares in the private sector bank.
Investors in the bank, other than SBI, will also have a voting right to the extent of their shareholding in the bank or 9% of the total voting rights of all shareholders in the reconstructed bank or as decided by RBI, whichever is lower. Higher voting rights up to 15% may be allowed to certain investors having higher shareholding and declared “fit and proper” by the RBI. The reconstructed bank will also allot its equity in within two working days following the commencement of the scheme. Government has also decided to exempt all investors in the Yes Bank from payment of capital gains tax for any deemed profit or gains on account of subscription of shares. The office of the administrator of YES Bank shall also stand vacated after seven days from the cessation of moratorium and the new Board will take over the bank. Early this week, SBI said that its board had approved an investment of Rs 7,250 crore in Yes Bank by purchasing 725 crore equity shares.
Meanwhile, another report said 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 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% 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.
“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.