PMC Bank Resolution Scheme Approved By Government With Staggered Deposit Pay-Out
PMC Bank Scheme Of Amalgamation: Retail depositors to see staggered payout over and above insured amount.
The Government has approved and notified the final resolution scheme for Punjab & Maharashtra Cooperative Bank, over two years after it was put under restrictions. All branches of PMC Bank shall operate as branches of Unity Small Finance Bank from Jan. 25, 2022 — the date of amalgamation, the government said in a gazette notification.
As part of the plan, PMC Bank depositors will see their deposits paid out in a staggered manner over 10 years, in a first-of-its-kind scheme.
Unity Small Finance Bank shall pay the insured deposit amount up to Rs 5 lakh received from the Deposit Insurance & Credit Guarantee Corp., according to the existing rules. Unity Small Finance Bank will have 20 years to repay DICGC, according to the plan.
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 an additional Rs 5.5 lakh.
After 10 years, any amount pending after the payments detailed above, will be paid on demand from the depositors.
No interest shall accrue against these deposits for five years after March 31, 2021, the plan says. After this period, a simple interest of 2.75% will be paid on the unpaid deposits every year.
"There's no change in the final plan compared to RBI's draft plan, as far as retail depositors are concerned. We will now seek legal recourse in this matter over the next few days," said Dipika Sahani, coordinator of PMC Bank Account Holders Forum. "We're in the process of appointing a counsel for this."
According to estimates by the forum, 9.09 lakh individual depositors of PMC Bank are owed Rs 7,836.77 crore as of Sept. 30, 2020. The amount of retail deposits, outside that insured by DICGC, stands at Rs 5,464.86 crore.
The estimates were detailed in an opposition letter dated Dec. 10, 2021, which was sent by the forum to the RBI. BloombergQuint has reviewed a copy of the letter.
As of March 31, 2020, the latest official data available, PMC Bank had a deposit base of Rs 10,727 crore and loans worth Rs 4,473 crore.
According to the plan for institutional depositors:
80% of the outstanding deposits of these depositors, shall be converted to perpetual non-cumulative preference shares with annual dividend of 1%.
The remaining 20% shall be converted to equity warrants of the small finance bank. These equity warrants will be converted to equity shares when Unity Small Finance goes for an initial public offering.
At the end of the 10th year after taking over PMC Bank, Unity Small Finance Bank shall use the net cash recoveries from assets pertaining to Housing Development & Infrastructure Ltd Group, to buyback the preference shares on a pro rata basis.
After the 21st year of acquisition, Unity Small Finance Bank can buy back the outstanding principle of PCNPS, at the rate of at least 1% of the total PCNPS issued, if certain criteria are met, according to the plan. The criteria includes:
All restructured liabilities, including those incurred toward DICGC, are paid back.
Unity Small Finance Bank's capital adequacy ratio is at least 300 basis points higher than regulatory minimum.
Net non-performing asset ratio of the bank is at least 200 basis points below the minimum risk threshold under the RBI's prompt corrective action plan at the time.
Net cash recoveries from HDIL Group's assets are at least 70% of the principal amount of advances.
The buy back of the PCNPS is capped at 10% of previous year's profit of Unity Small Finance Bank.
Long-term deposits, classified as Tier-II instruments on PMC Bank's balancesheet, will be fully converted to PCNPS, according to the plan.
The employees of PMC Bank shall continue with the same remuneration and other terms and conditions, for a period of three years, after Jan. 25, 2022.
Unity Small Finance Bank may discontinue the services of key managerial personnel of PMC Bank, at any time, following due procedure and providing them with compensation, as per their terms of employment.
For PMC Bank's existing members, the entire amount of the paid-up share capital and reserves and surplus of the transferor bank shall stand written off.
A draft plan released in Nov 2021 had called for a deferred repayment scheme for the cooperative lender's depositors. The plan had been opposed by individual depositors, housing societies, religious institutions, cooperative industry bodies, among others.
The government and the banking regulator, however, have chosen to continue with most parts of the draft plan despite opposition.
With the final plan in place, Unity Small Finance Bank, a joint venture between Centrum Group and payments company Bharatpe, will take over the assets and liabilities of PMC Bank. The small finance bank was provided a license by the regulator, specifically under the resolution process for PMC Bank.
The RBI last week had approved the appointment of Vinod Rai as an independent chairman of Unity Small Finance Bank. Apart from Rai, the board will include 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.