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Nearly two years after the Reserve Bank of India seized the Punjab and Maharashtra Cooperative Bank (PMC) on September 24, 2019, capped withdrawals and launched an investigation into accounting decline, there is finally some good news for the depositors.
The Reserve Bank of India (RBI) on Friday cleared the decks for the acquisition of Punjab and Maharashtra Cooperative Bank (PMC) by a consortium of non-bank lender Centrum Financial Services and fintech startup BharatPe. However, the central bank has not released details of the proposed acquisition of PMC Bank.
the take over
In February, Centrum Financial Services and BharatPe had submitted a joint proposal to acquire PMC Bank.
Centrum Financial Services is a retiring subsidiary of the listed Centrum Capital.
It provides credit to small and medium-sized businesses ranging from Rs 2 lakh to Rs 2 crores.
Resilient Innovations Pvt Ltd, which operates BharatPe, becomes an equal partner in the small financial bank.
RBI said it has decided to give approval in principle to Centrum to set up a small financial bank under licensing standards on tap.
On-tap licenses refer to the regulator providing banking licenses on a continuous basis, rather than once every several years.
Hope for PMC depositors to get their money back?
The RBI’s move comes as a relief to depositors at the cooperative bank, whose funds have been locked up for nearly two years.
PMC Bank savers are likely to get back the money tied up as fixed deposits if we stick to the standards of previous bank mergers.
When the SBI-led consortium rescued Yes Bank last year, none of the savers lost their money.
However, banking experts say the refund to depositors will depend on the arrangement agreed between the RBI and Centrum-BharatPe.
The main question is whether the RBI will enable Centrum to convert part of the liabilities (deposits) into equity.
Or will investors only get back the amount insured with the Deposit Insurance and Credit Guarantee Corporation (DICGC)?
The main difference between a universal bank and a small financial bank is the presence of certain credit provisions for the latter.
While a universal bank can lend freely, a small financial bank should largely focus on the priority sector and small card lending.
The process
The new entity should be operational in the next 120 days and only when that is done will the RBI prepare a merger agreement with PMC Bank.
The plan is then sent to the Union government for approval and official notification.
Under Section 45 of the Banking Act, only one bank can be merged with another and therefore the process will not start until the small financial bank is established.
Status of PMC Bank
RBI limited initial withdrawals to Rs 1,000 per account for six months, which was gradually eased to Rs 100,000 in June last year.
PMC Bank had total deposits of Rs 10,727.11 crores and total advances of Rs 4,472.78 crores as of March 31, 2020.
Gross non-performing assets were Rs 3,519 crore in FY20, up from Rs 315 crore in FY19, according to its website.
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