Ray of hope for PMC depositors as Centrum roped in for revival

However, restrictions to continue for a while till Centrum gets the final approval

Nearly 21 months after restrictions were imposed on Punjab and Maharashtra Cooperative (PMC) Bank, there is good news for the depositors, finally. The Reserve Bank of India (RBI) has granted in-principle approval to Centrum Financial Services – a non-banking finance company headed by former chief executive of Standard Chartered's Asia Pacific operation, Jaspal Bindra - to set up a small finance bank (SFB). Centrum had put a bid to acquire the fraud-hit multi-state cooperative bank. The RBI said approval has been accorded in specific pursuance to the Centrum's offer of acquiring PMC Bank.

However, despite the approval, it will take some time before PMC re-starts its operations as a new entity. For one, Centrum has to form a banking company, and follow the due process to get the final nod, sources said.

“The directions will continue as of now,” said a source with direct knowledge of the matter. Restrictions on deposit withdrawals and others will continue till the time the merger is complete and the bank is ready to start operations.

The strictures, which were first imposed after the close of business hours on September 23, included capping the deposit withdrawals at Rs 1,000. The bank was neither allowed to extend any fresh loans nor to accept any new deposits. Later, the deposit withdrawal cap was gradually raised to Rs 1 lakh.

Sources said the central bank will provide liquidity support and the new entity has to make a request for such a facility. Importantly, Deposit Insurance and Credit Guarantee Corporation (DICGC) will be roped in for the revival of a bank, they said. DICGC is liable to pay the claim under two circumstances – one, when a bank is liquidated; and two, when a bank is reconstructed or merged with another bank – in this case the latter circumstance is applicable. DICGC will pay the bank in case the depositors want to withdraw the deposits.

The central bank has also set a deadline to Centrum before which the new entity has to start operations. When universal bank licences were granted to Bandhan and IDFC in 2014 – they were asked to start operation in 18 months. However, Centrum has to complete the acquisition and start business much faster.

PMC Bank sources said it will take another three months for the process to get completed and re-start operations.

Last year, PMC Bank – which is under an RBI appointed administrator – invited expressions of interest from prospective bidders. While four entities applied, one backed out at the initial stage itself. Centrum and BharatPe decided to make a joint offer. Sources said Centrum and BharatPe will jointly be the new promoter of PMC Bank.

Since 2019, there were two banks which were on the verge of failure but revived quickly following the central bank’s intervention. The revival of Yes Bank was due to a number of banks led by State Bank of India and the other one – Lakshmi Vilas Bank – was acquired by the Indian subsidiary of Singapore’s DBS Bank.

PMC’s revival is taking much more time than the other two.

“The whole process took time…some showed interest, some backed out ..then evaluation of expression of interest took time. It is like arranged marriage, some go through fast, some take time,” the source said adding the Centrum the process till the end which resulted in the deal.

PMC Bank’s total deposits were Rs 10,727.12 crore, and total advances Rs 4,472.78 crore, as of March 2020. The urban cooperative bank, which was hit by financial irregularities, saw its capital adequacy ratio has turned negative 258.66 per cent. The bank had Rs 3,518.89 crore worth of gross non-performing assets (NPAs) as on March 31, 2020.

PMC registered a net loss of Rs 6,835 crore during 2019-20 due to an alleged fraud, which resulted in the net worth turning negative Rs 5,850.61 crore.