Panicked depositors outside PMC Bank after the curbs were first imposed in Sept 2019 (File image)
The Reserve Bank of India (RBI) on Friday said the resolution process at Mumbai-based Punjab and Maharashtra Cooperative Bank may take some more time given the financial conditions of the bank even though the bank has received binding offers from certain investors for its reconstruction.
“PMC Bank had received binding offers from certain investors for its reconstruction, in response to the Expression of Interest (EOI) dated November 3, 2020 floated by the bank,” the RBI said in a press release.
“RBI and PMC Bank are presently engaging with prospective investors in order to secure best possible terms for the depositors and other stakeholders while ensuring long term viability of the reconstructed entity. Given the financial condition of the PMC Bank, the process is complex and is likely to take some more time,” the central bank said.
Subsequently, the RBI has extended the period of directions imposed on the bank till June 30, 2021 from April 1, 2021. The RBI had superseded PMC Bank board in September, 2019 and appointed an administrator. In December, PMC Bank said it has received four Expression of Interests (EoIs) for investment/participation in its reconstruction.
According to the details of the proposal by the bank, the investor should bring in the capital required for enabling the bank to achieve the minimum required capital to risk weighted assets ratio (CRAR) of 9 per cent.
In January, Payments services company BharatPe said it is keen on acquiring Punjab and Maharashtra Cooperative (PMC) Bank. In an interview to CNBC-TV18, the company confirmed its plan to acquire the lender. On January 16, Bharat Pe and Centrum submitted a combined offer for the troubled lender. As per reports, in the joint bid for PMC Bank, BharatPe and Centrum could pay back 100 percent to retail depositors, who want to withdraw.
The proposals
The investors can later explore the option of restructuring a part of deposit liabilities into capital/capital instruments, the bank said, adding, it may also approach DICGC for its support for payment up to Rs 5 lakh to depositors. After due evaluation, the viable proposal(s) will be forwarded to the RBI for its consideration for preparing a draft scheme of reconstruction and other consequential action under Section 45 of Banking Regulation Act, 1945, the proposal had said.
According to the bank, it had total deposits of Rs 10,727.12 crore, total advances of Rs 4,472.78 crore and gross NPA of Rs 3,518.89 crore as on March 31, 2020. The share capital of the bank is Rs 292.94 crore. The bank registered a net loss of Rs 6,835 crore during 2019-20 and has a negative net worth of Rs 5,850.61 crore.
RBI attempting early resolution
In December, 2020, the Reserve Bank of India (RBI) Governor Shaktikanta Das said that initial response from potential investors for crisis-ridden cooperative bank “looks positive” and the bank’s management is in touch with investors to evaluate the interest. The deadline for investors to submit binding offers for PMC Bank is December 15.
The deadline for submitting the expression of interest expired on November 30.
Though the RBI could rescue two crisis-ridden banks—YES Bank and Lakshmi Vilas Bank—in a very short period after the Boards were superseded, the regulator hasn’t got success yet in finding a rescuer for PMC Bank even after a year.
The RBI superseded PMC Bank board in September 2019. About 70 percent of its total loan book of Rs 8,383 crore as on March 31, 2019, had been taken by real estate firm HDIL. The bank had Rs 11,600 crore in deposits. The police arrested Joy Thomas, former managing director of the PMC Bank, in October. The investigators have since made a few more arrests.
During investigations, it was found that the bank had been allegedly running fraudulent transactions for several years to facilitate lending to HDIL through fictitious accounts and violating single-party lending rules. The RBI imposed restrictions on deposit withdrawals and superseded its board after the fraud was detected.
Withdrawal curbs
After the RBI took over the board of PMC Bank, deposit withdrawal restrictions were imposed on the bank (initially Rs 1,000 per account which was later increased to Rs 50,000). About 78 percent of the depositors have since been allowed to withdraw their deposits within the withdrawal limit of Rs 50,000.
Even though this limit was further enhanced to Rs 1 lakh in June last year, many depositors who have bigger amounts parked in the bank are still not able to get their money back.
While enhancing the withdrawal limit to Rs 1 lakh, the RBI had said that more than 84 percent of the depositors of the bank will be able to withdraw their entire account balance.
