PMC Bank Resolution: Depositor Payments Immediate Priority, Says Centrum's Bindra

Unity Small Finance Bank, the newly created lender to take over Punjab & Maharashtra Cooperative Bank, will prioritise integrating the two lenders and paying depositors of the cooperative bank.

"There are two immediate challenges in front of us, which are integrating PMC (Bank) within Unity (Small Finance Bank) and the second is repaying the depositors," Jaspal Bindra, executive chairman of Centrum Group, told BloombergQuint in an interview. "We're emphasising these two over new business or anything else."

Unity Small Finance Bank is promoted by Centrum Group. It also has investments from Resilient Innovations Pvt., which owns the payments brand Bharatpe.

Earlier this week, the government approved the resolution scheme for PMC Bank, which allows Unity Small Finance Bank to take over the cooperative lender's assets and liabilities. On Thursday, Unity Small Finance Bank took charge of PMC Bank's 110 branches and 1,100 employee base, it said in a statement.

Paying Retail Depositors

According to Bindra, Rs 4,000 crore in deposits will be repaid within the next 60 days through the Deposit Insurance Credit Guaratnee Corporation. Once that is paid out, Unity Small Finance Bank will need to repay another Rs 6,400 crore over years.

"We have around 9.6-9.7 lakh depositors. Of that, about 9.3-9.4 lakh will get paid out immediately (through DICGC)," Bindra said. "So we'll be left with about 30,000 depositors who will be owed about Rs 6,400 crore."

This would include both retail and institutional depositors. Over the next five years, Unity Small Finance Bank will look to pay Rs 2,000 crore to retail depositors. Then after another five years, the bank will pay another Rs 2,000 crore to the remaining retail depositors who have deposits in excess of the insured amount of Rs 5 lakh.

According to the resolution scheme, for those retail depositors with outstanding deposits exceeding Rs 5 lakh:

• Rs 50,000 over and above the insured amount will be paid at the end of the first year.

• Another Rs 50,000 will be paid out at the end of the second year.

• After three years, the bank shall pay up to an additional Rs 1 lakh.

• After four years, the bank shall pay up to an additional Rs 2.5 lakh.

• After five years, the bank shall pay up to Rs 5 lakh.

• After 10 years, any amount pending after the payments detailed above, will be paid on demand from the depositors.

What About Institutional Depositors?

For institutional depositors, 80% of their outstanding deposits will be converted to perpetual non-cumulative preference shares, while the rest of the deposits will be converted to equity warrants, according to the resolution scheme.

"The institutional depositors will get about Rs 600 crore worth equity warrants," Bindra said.

These warrants will be converted to equity shares when the small finance bank launches its initial public offering. The price of conversion will be decided when the IPO is set to be launched, according to the plan.

In case of the PCNPS, Unity Small Finance Bank will buy back these instruments using funds from the net cash recoveries from the Housing Development & Infrastructure Ltd. Group's account.

According to Bindra, PMC Bank has a claim of Rs 7,500 crore against HDIL Group. In this, Rs 2,500 crore is the principal loan amount and the rest is pending interest, he said.

"The principal amount we have taken into account as money we will use to pay depositors over five years. Anything above the principal which gets recovered, will be used to redeem the preference shares," Bindra said.

Is The Scheme Fair?

In a statement on Thursday, Unity Small Finance Bank encouraged depositors getting the DICGC payment to deposit their funds with the small finance bank to earn saving account interest of up to 7%.

This at a time when those who are not fully covered by the DICGC earn no interest for up to five years. If depositors have outstanding deposits after five years, they would earn an annual interest of 2.75%.

Is this fair? It is, says Bindra.

"People who will get Rs 5 lakh will have real money in their hands to deposit, so we can afford to pay them interest," he said.

According to him, the Rs 10,400 crore worth deposits on PMC Bank's balance sheet don't exist in the form of real cash with the bank. "We have had to create that and pay it. So we don't have the corpus to pay interest on deposits which do not exist right now," Bindra said.

Board & Management At Unity

Vinod Rai, the former comptroller and auditor general of India, has been appointed as independent chairman. Apart from Rai, the board consists of RBI veteran Sandip Ghose, former Syndicate Bank Chairman Basant Seth and former RBL Bank Chairman Subhash Kutte, the small finance bank had said in a statement.

The board will consist of five independent directors and two non-independent directors, Bindra said. The appointments will be concluded within the next few weeks. According to Bindra, for a small bank, a board of seven directors is enough. Unity Small Finance Bank will look at expanding its board later on.

What about partner Bharatpe, where co-founder Ashneer Grover has gone on voluntary leave till end of March 2022 following controversy regarding inappropriate language allegedly used on a phone call with a Kotak Mahindra Bank employee?

"Ashneer Grover is definitely not on the board today. Till things are settled, he will not be," Bindra said.

Among members of the bank's management, Bindra said that nobody from Bharatpe or Centrum Financial Services will hold an executive position.

So far, the small finance bank has appointed people to head divisions such as human resources, internal audit and treasury. Unity Small Finance Bank is currently in talks with external CEO candidates and will finalise an appointment soon, Bindra said.

"It does not need to be an internal person at all... We don't see any compulsion to appoint someone internally," Bindra said.

To ensure the bank is not headless, Inderjeet Camotra, an executive director with Centrum Financial Services, has been appointed as interim CEO, he said.

Building A Business

As far as new business is concerned, Unity Small Finance Bank will start with a small set of services for its customers and then slowly grow its offerings.

"We will start with the MSME (micro, small and medium enterprises) segment and priority sector through microfinance loans. We will also look at doing personal unsecured credit in the consumer space, which will be our next big thing," Bindra said.

Over time, services such as auto loans, gold loans and insurance will become part of the bank's bouquet of services, Bindra said.