Yes Bank Update- Know About 3 Years Lock-in

Yes Bank investors are now facing a three-year lock-in period. What’s going on?

When a new animal is brought to a zoo, it has to stay there for a certain period. Whether the animal is uncomfortable or it’s enjoying its stay there, it doesn’t have an option to exit. We had never thought that this phenomenon could be applied to human beings as well. But, this has been imposed upon a group of investors who have now been virtually locked down with their investment and won’t be able to exit for next three years.

We’re talking about those who have invested in Yes Bank. The rescue plan for the reconstruction of ailing Yes Bank has been introduced with a twist. A three-year minimum lock-in period has been imposed on the shareholders who hold more than 100 shares of Yes Bank (to an extent of 75 percent of their holdings).

About the ‘Rescue’

Just when the investors thought that Yes Bank has fallen, government announced that it will rescue the bank. Then something dramatic happened, SBI and some private banks invested a few hundred crores each to save the ailing Yes Bank. This cooperation is as if few athletes are competing in a race and one of them falls down while running.

Now, instead of concentrating on the race and trying to win it, other athletes turn their attention to the one fallen and help him get up. Now they start running together. Although, this might look more sentimental than logical but that is what just happened in the Indian baking industry. This came along with a fine print. The three-year lock-in period that we mentioned earlier.

Depositors and Investors

Yes Bank will be writing down AT1 bonds worth more than 8400 crores. Just in case you’re not aware what AT1 bonds are, these are sort of back-ups for the depositors who hold an account with the bank. So, if the bank fails due to some reason, then these are liquidated to return the depositors’ money. Now, the reconstruction for Yes Bank is going well for the depositors (till now) because of the plan to write off AT1 bonds.

But, for the shareholders it’s a situation as if there’s a hailstorm after their heads have been shaved (it’s a famous saying in Hindi which denotes conditions worsening up). First, the expectations of the shareholders got shattered and the bank failed. Now, when the government has come up with a rescue plan, a 3-year lock-in period has also been introduced along with it. This also violates the fundamental of stock market investing according to which you can invest and withdraw your money anytime you want.

Probability Hence

Although some well known research analysts are saying that the reconstruction scheme has been implemented for the benefit of shareholders and retail investors and that the 3-year lock-in period will benefit the retail investors in the long run. But, those who are invested with Yes Bank are probably feeling cheated. At the same time, they might be seeing a few rays of hope with the Yes Bank share price rising constantly since the last few days. But, will they get a better return on their investment after 3 years? This is something that only time can answer.

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