Over Rs 100-crore relief for ETFs as Yes Bank three-year lockup ends

The lock-in on 75% of shares had led fund houses to markdown holdings in ETF and index funds to 'zero', as per recommendation from valuation committee of Amfi

Exchange traded funds (ETFs) and index funds stand to pocket over Rs 100 crore by liquidating shares of Yes Bank following the end of a three-year lock-in period on the lender’s shares on Monday.

Fund houses will to pay this amount to the unitholders of their ETFs and index funds, who were forced to hold on to Yes Bank’s 75 per cent of shares due to the lock-in imposed by the Reserve Bank of India (RBI) as part of the reconstruction plan.

The lock-in on the 75 per cent of shares had led fund houses to markdown the holdings in ETF and index funds to 'zero', as per the recommendation from the valuation committee of the Association of Mutual Funds in India (Amfi). Now, they plan to sell these shares and distribute the proceeds among investors who held units in these schemes on March 13, 2020.

"We were forced to hold onto Yes Bank shares despite the scrip moving out of the indices. Now that the lock-in is over, the holding will be liquidated and proceeds will be distributed among investors," said a senior MF executive.

Another fund house executive said their investors can expect the payout as early as this week.

Before the troubles came to fore, Yes Bank was part of several indices including Nifty 50, Bank Nifty, Nifty 100 and Nifty Private Bank. As a result, all passive funds tracking these indices had exposure to the bank. While most active funds sold their holdings in Yes Bank post the crisis, passive funds had no option but to wait for the share to move out of their respective benchmarks. But by the time the index rebalancing happened, the lock-in had come into effect, forcing ETFs and index funds to continue holding on to Yes Bank shares even as it moved out of the indices.

Data shared by analyst Brian Freitas of Periscope Analytics, who publishes on Smartkarma, shows that ETFs and index funds held over 67 million shares of Yes Bank until last week. At the Monday market close value of Rs 15.7, the value of the holding is Rs 105 crore. SBI MF Nifty 50 ETF held the highest number of shares at 23.7 million, followed by Kotak Nifty Bank ETF with 12 million shares.

As expected, the shares of Yes Bank witnessed downward pressure on Monday as investors made a dash for exit as the lock-in came to end. The stock opened over 10 per cent lower but recovered during the day to close at Rs 15.7, down 4.9 per cent over its previous close. Nearly Rs 1,000 crore worth of shares got traded on NSE and BSE.