The Reserve Bank of India (RBI) on Monday released a draft scheme for the acquisition of Punjab and Maharashtra Cooperative (PMC) Bank by Delhi-based Unity Small Finance Bank (USFB).
The draft scheme of amalgamation envisages the takeover of the assets and liabilities of PMC Bank, including deposits, by USFB, thus giving a greater degree of protection for the depositors, the banking regulator said.
“It may be seen that USFB is being set up with capital of about Rs1,100 crore as against a regulatory requirement of Rs200 crore for setting up of a small finance bank under the guidelines for on-tap licensing of small finance bank in private sector dated 5 December 2019, with provision for further infusion of capital at a future date after amalgamation,” RBI said.
Equity warrants of Rs1,900 crore, to be exercised anytime within a period of eight years, have been issued by Unity Small Finance Bank on 1 November 2021 to the promoters to bring further capital, according to the draft scheme.
USFB is being set up with a capital of about Rs1,100 crore as against the regulatory requirement of Rs200 crore for the setting up of such a bank, as per the guidelines for on-tap licensing.
The central bank said it would receive suggestions and objections on the draft scheme up to 5.00pm on 10th December. Thereafter, it will take a final view on the takeover.
It is to be noted that Unity Small Finance Bank Limited, a joint venture between Centrum Group and Bharatpe, has commenced operations as a small finance bank with effect from 1 November 2021.
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.
According to this draft, the acquiring bank will pay the amount guaranteed by Deposit Insurance and Credit Guarantee Corporation (DICGC) of up to Rs5 lakhs to depositors. For the remaining amount, 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 Rs1 lakh at the end of three years, Rs3 lakhs at the end of four years, Rs5.5 lakhs at the end five years and the entire remaining amount will be paid after 10 years.
The interest on any of the interest-bearing deposits with the transferor bank (PMC Bank) shall not accrue after 31 March 2021, 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% 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.
The large depositors of PMC Bank, however, feel that the terms offered by RBI are not fair to them. While their funds will be locked up, RBI makes no mention of what will happen to money recovered from HDIL (Housing Development and Infrastructure Ltd) which perpetrated the fraud that led to PMC Bank's collapse. According to statements put out by government investigation agencies, a few thousand crore rupees of assets have been seized from the Wadhawan family of HDIL. Secondly, by issuing PNCPS with 1% dividend, the depositors whose money is locked in have no possibility of any upside benefit if the Bank does well or is listed / acquired.
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.
It may be recalled that the PMC Bank was placed under business restrictions with effect from the close of business on 23 September 2019 and RBI superseded the bank’s board on account of fraud, which led to steep deterioration in the net worth of the Bank.
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 1 February 2021, in response to the Expression of Interest notification dated 3 November 2020, published by the Punjab & Maharashtra Co-operative Bank Ltd., Mumbai,” RBI said.
The directions were last extended through an RBI directive on 25th June up to 31 December 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 Rs5 lakh,” RBI said.