The RBI crackdown on co-operative banks continues in 2021 as well. [Representational Image]
The Reserve Bank of India on November 22 placed in public domain a draft scheme for amalgamation of Punjab and Maharashtra Cooperative (PMC) Bank and Unity Small Finance Bank (USFB).
The draft envisages takeover of the assets and liabilities of PMC Bank including deposits, by USFB in terms of the provisions of the scheme, giving a greater degree of protection for depositors.
“It may be seen that USFB is being set up with capital of about Rs 1,100 crore as against a regulatory requirement of Rs 200 crore for setting up of a small finance bank under the guidelines for on-tap licensing of small finance bank in private sector dated December 5, 2019, with provision for further infusion of capital at a future date after amalgamation,” the RBI said.
Equity warrants of Rs 1,900 crore, to be exercised anytime within a period of eight years, have been issued by Unity Small Finance Bank on November 1, 2021 to the promoters to bring further capital, according to the draft scheme.
The RBI has invited suggestions on the draft scheme till December 10. A final decision will be taken after that, it said.
When will PMC Bank depositors get their money back?
The depositors of Maharashtra-based PMC Bank will get their money back over a period of three to ten years, according to the draft scheme of amalgamation.
As per this, the acquiring bank will pay the amount guaranteed by DICGC of up to Rs 5 lakhs to depositors. For the remaining amount, the bank will pay up to Rs50,000 above the payment already made at the end of two years, will pay an amount of up to Rs one lakh at the end of three years, Rs 3 lakhs at the end of four years, Rs 5.5 lakhs at the end five years and the entire remaining amount will be paid after ten years.
The interest on any of the interest bearing deposits with the transferor bank (PMC Bank) shall not accrue after March 31, 2021, the RBI said.
“No further interest will be payable on the interest bearing deposits of transferor bank for a period of five years from the appointed date. In respect of balances in any current account or any other non-interest bearing account, no interest shall be payable to the account holders, according to the scheme,’.
For institutional depositors, on and from the appointed date, 80 per cent of the uninsured deposits outstanding is proposed to be converted into Perpetual Non-Cumulative Preference Shares (PNCPS) with dividend of one per cent per annum payable annually.
“After ten years from the appointed date, the transferee bank may consider additional benefits for such PNCPS holders either in the form of providing a step up in coupon rate or a call option, upon receipt of approval from the Reserve Bank,” the scheme proposes.
Further, all the employees of the transferor bank will continue in service on the same remuneration and terms and conditions of service for a period of three years from the appointed date, the scheme said.
How it unfolded
Maharashtra-based PMC Bank was placed under business restrictions with effect from the close of business on September 23, 2019 and the RBI superseded the bank’s board on account of fraud, which led to steep deterioration in the net worth of the bank.
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.
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. As on March 31, 2020, PMC Bank 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. The share capital of the bank stood at Rs 292.94 crore. The bank registered a net loss of Rs 6,835 crore in 2019-20 and reached a negative net worth of Rs 5,850.61 crore.
RBI had on June 18 this year said it has decided to grant an in-principle approval to Centrum Financial Services to set up a small finance bank. “This in-principle approval has been accorded in specific pursuance to Centrum Financial Services Limited’s offer dated February 1, 2021, in response to the Expression of Interest notification dated November 3, 2020, published by the Punjab & Maharashtra Co-operative Bank Ltd., Mumbai,” the RBI said.
The directions were last extended through a June 25 directive from the central bank up to December 31, 2021. “Given the financial condition of the PMC Bank and in the absence of proposals for capital infusion, the bank was not viable on its own. In that event, the only course of action could have been cancellation of its licence and taking it for liquidation, wherein depositors would have received payment up to the insurance ceiling of Rs 5 lakh,” the RBI said.
(This is a developing story. Please check back for details)