Draft amalgamation scheme insensitive and a cruel joke: PMC depositors

PMC assets sufficient to meet liabilities of all retail depositors, says Depositors Association

The PMC Depositors Association, which represents more than 500 depositors of the troubled The Punjab and Maharashtra Cooperative (PMC) Bank, has termed the Reserve Bank of India’s draft scheme of amalgamation with Unity Small Finance Bank as shamefully insensitive, and said the scheme is no less than a cruel joke played on the depositors.

The draft scheme, announced last week, proposed depositors of the troubled lender with deposits of more than Rs 5 lakh have to wait 5 to 10 years to get their principal amount back. In addition, interest will not be accrued on such deposits for the first 5 years, after which interest rate of 2.75 per cent will be paid, which is less than savings account deposits offered by most banks in the country.

“By suggesting a further wait of 5 to 10 years, with no interest for the first 5 years and a pittance 2.75 per cent interest after 5 years, the RBI is surely sounding the death knell for the PMC depositors and is leaving no stone unturned to write the death warrant for the senior citizens,” the depositors association said in a letter to Neeraj Nigam, a chief general manager in RBI, who was involved with the reconstruction of the bank, which was put under all-inclusive restrictions in September 2019. The three coordinators of the association–-which has applied for a registration–-are the signatories of the letter, that has been received by RBI on Friday, 

The letter which has been reviewed by Business Standard said senior citizens, defense personnel, single mothers, housewives and widows have lost their dignity to life and have been struggling to even meet the basic needs of life even though they have funds that are locked up in PMC Bank for absolutely no fault of theirs. They also said over 250 depositors lost their lives as they were unable to meet the escalating costs of their medical and hospital bills or cope with the mental trauma they were subjected to.

While around 96 per cent of the depositors will get back their all deposits once the merger takes place, more than 20,000 depositors of high value deposits will have to wait for a decade.

In the letter, the depositors cited calculations to show that the present value of assets of PMC Bank are sufficient to pay back all the retail high value depositors. The calculation shows, net payable amount to the retail depositors are Rs 4835 crore after taking into account that institutional depositors are not getting back their deposits and DICGC money will be used to pay back to depositors up to Rs 5 lakh (as the scheme suggested), while is assets with PMC is Rs 5,090 crore. (See Table).

“Total assets available is marginally higher than net deposits due to retail depositors. There is absolutely no reason why all the retail depositors should have access to their funds right away,” the letter said.

Unity Small Finance which is jointly owned by Centrum Financial Services Limited and Bharat Pe, has received a licence from RBI to start a small finance bank. PMC’s assets and liabilities will be merged with Unity.

“There is cash lying with PMC Bank, which belongs to its depositors. RBI is handing over that deposit to the new promoters without any recourse to the earlier depositors. They are getting the whole bank for a song,” said Sandeep Bhalla, a PMC Bank customer whose life savings stuck after the multi-state cooperative bank. “The draft scheme is a second scam on PMC’s depositors,” Bhalla added. The banking regulator imposed the restrictions on the cooperative lender in 2019 after allegations of financial irregularities.

The central bank seems to suggest this was the best solution for the scam hit cooperative lender. The scam has eroded the bank’s networth, and not many were interested in taking over PMC. Most cooperative banks headed for liquidation in the past, but for PMC, at least retail depositors are getting their principal back – was the thinking of the central bank.

“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,” RBI said while announcing the amalgamation scheme.

Siddhesh Pandey, coordination of PMC Depositors Association, said the RBI officials seem to suggest during their interaction that the central bank had no other option but to agree with the terms and conditions of the Centrum, as there was no other suitor. Initially, four  bids were received after an expression of interest floated by PMC for a takeover, of which one did not pursue. The others have not met the fit and proper criteria of RBI to float a bank.

“RBI officials said there was one applicant so they were unable to negotiate,” Pandey told Business Standard. PMC depositors, whose money is going to be stuck for a decade, are of the view that Centrum got the coveted bank license at the cost of their deposits.

Unity SFB said that the draft plan saved PMC from liquidation, and protected the interest of all stakeholders. “Keeping the depositors’ interest foremost, we operationalized the bank in record time, demonstrating a quick turnaround from RBI’s approval on 12th October 2021,” a statement from Unity said, adding shareholders of Unity have committed capital over Rs 3000 crore through cash and warrants. Centrum and Bharat Pe will jointly own Unity SFB.

Aggrieved depositors of PMC Bank are now mulling legal options, and are likely to challenge the proposed scheme in the Bombay High Court.

“We are looking for legal remedies. Before giving any suggestion to the RBI, we may file an objection for this kind of resolution to the Bombay High Court,” Pandey added. On Friday, over 300 PMC depositors gathered at RBI’s office at Bandra Kurla Complex to protest against the draft scheme. Similar protests are planned this week also at the RBI headquarters in South Mumbai. 

Table A: Liabilities

1	Deposits payable to depositors	10,535
2	Institutional money capitalized (less)	2,000
3	DICGC amount available to pay depositors	3,700
4	Net deposits payable to retail depositors (1-2-3)	4,835

Table B: Assets available with PMC bank

1	Investments (SLR, CRR)	2,350
2	Cash and balances with RBI	376.7
3	Balances with other banks, call and short notice	155.4
4	Total liquid assets (1+2+3)	2,282
5	Good assets (entire portfolio can be sold to other banks)	1,400
6	Land and Building (recoverable from Unity SFB)	443
7	IT Refund and miscellaneous	365
8	Total Assets (4+5+6+7)	5,090

Figures in Rs crore; Source: PMC Depositors Association