The Reserve Bank of India (RBI) has detailed a draft scheme of almagamation to merge the sick Punjab and Maharashtra Co-operative (PMC) Bank with the newly formed Unity Small Finance Bank Ltd (USFB), more than two years after PMC was put under restrictions on account of fraud which led to steep deterioration in the net-worth of the bank.
Acoording to the scheme deposits upto Rs 5 lakhs can be claimed by depositors over a period of three to ten years.
The scheme says that depositors can claim upto Rs 50,000 at the end of three years and further can claim Rs 1 lakh at the end of four years, Rs 3 lakh at the end of five years and Rs 5.50 lakh at the end 10 years.
It may be recalled that the RBI had doubled the amount depositors can withdraw from PMC Bank to Rs 1 lakh from Rs 50,000 in June 2020, allowing more than 84% of the depositors to withdraw their entie account balance.
RBI said the above limits are for depositors are over and above the withdrawals already made.
According to this schedule the entire remaining deposits of PMC Bank depositors will be paid back within 10 years from the date the central government notifies this scheme of amalgamation.
Further, the central bank has clarified that interest on these deposits shall not accrue after March 31, 2021 for five years.
“No further interest will be payable on the interest bearing deposits of transferor bank for a period of five years from the appointed date. Provided further that interest at the rate of 2.75 per cent per annum shall be paid on the retail deposits of the transferor bank (PMC) which shall be remaining outstanding after the said period of five years from the appointed date. This interest will be payable from the date after five years from the appointed date,” RBI said.
80% of uninsured institutional deposits will be converted into Perpetual Non-Cumulative Preference Shares (PNCPS) of Unity SFB with dividend of one per cent per annum payable annually.
After ten years from the appointed date, Unity SFB may consider additional benefits for 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 remaining 20% of the institutional deposits will be converted into equity warrants of Unity SFB at a price of Re.1 per warrant.
These equity warrants will further be converted into equity shares of the Unity SFB at the time of the Initial Public Offer (IPO) when it goes for one.
“In respect of every other liability of the transferor bank (PMC) the transferee bank (Unity) shall pay only the principal amounts, as and when they fall due, to the creditors in terms of the agreements entered between them prior to the appointed date or the terms and conditions agreed upon,” RBI said.
In June, RBI had given an in principle approval to Unity SFB, a joint venture of Centrum Financial Services and Resilient Innovations Pvt. Ltd which runs payments company BharatPe to take over PMC. Unity started operations as recently as November 1.
PMC Bank had 137 branches and deposits of around Rs 11,600 crore, at the time restrictions were announced.
The RBI has been finding a solution to PMC since September 2019. The directions on the bank were last extended on June 25, 2021 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 ?5 lakh,” RBI said in a release.
USFB has already been set up with capital of about Rs 1,100 crore as against regulatory requirement of Rs 200 crore. The central bank has invited suggestions and objections from members, depositors and other creditors of PMC and USFB on the draft scheme by December 10.