Tag: amalgamation

PMC Bank depositors dismayed by move to deny them interest

Banking & Finance

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Distraught depositors of the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank have a simple question for the Reserve Bank of India (RBI): “How can a bank take a deposit and not pay interest on it?”

They are irked by a clause in the draft scheme of the bank’s amalgamation with Unity Small Finance Bank (transferee bank) that says, “no further interest will be payable on the interest-bearing deposits of transferor (PMC) bank for a period of five years from the appointed date”.

The clause appears at odds with the Reserve Bank of India (Interest Rate on Deposits) Directions, 2016.

PMC’s 1,100 employees can heave a sigh of relief

The master direction says that scheduled commercial banks (SCBs) cannot “accept interest-free deposit other than in current account or pay compensation indirectly”.

Co-operative banking experts opine that the treatment of bank depositors should be evenhanded, irrespective of whether it is an SCB or a scheduled urban co-operative bank.

‘Sweetener for transferee’

S Ravi, Founder and Managing Partner of the chartered accountants firm Ravi Rajan & Co. LLP, said: “It is a sweetener for the transferee bank, giving it access to interest-free cash flow for five years.

“In the case of Yes Bank and Lakshmi Vilas Bank, the bondholders lost their money. Similarly here, the depositors are losing interest. Probably, this is also a way to discourage people from coming into co-operative banks.”

The RBI may have to revisit the “no further interest” clause in the scheme of amalgamation due to its master direction.

According to the RBI’s interest rate framework, SCBs shall pay interest on deposits of money (other than current account deposits) accepted by them or renewed by them.

PMC depositors with over ₹5 lakh disappointed with draft scheme

Further, the interest rates shall be reasonable, consistent, transparent and available for supervisory review or scrutiny.

Chander Purswani, President, PMC Depositors Forum, said depositors felt shortchanged and would submit their objections to the RBI.

He observed that the 10-year period prescribed for withdrawal of large retail deposits from Unity SFB was too long and suggested halving it.

Red flag and after

As at March-end 2021, PMC Bank had deposits aggregating ₹10,535 crore. Of this, about 70 per cent are retail deposits and the rest are institutional deposits, including other urban co-operative banks (216) and co-operative societies (1,750).

PMC Bank came to grief in 2019 as its high exposure to real estate company HDIL turned non-performing.

The central bank red-flagged the fraud and/or financial irregularities in the bank and the manipulation of its books of accounts.

In October 2021, the RBI granted a banking licence to Unity SFB, established jointly by Centrum Financial Services Ltd (CFSL) and Resilient Innovations Private Limited (BharatPe), to carry out SFB business in India.

The RBI had on June 18, 2021, given an “in-principle” approval to CFSL, a wholly-owned subsidiary of Centrum Capital Ltd, to set up an SFB.

The “in-principle” approval was specific to CFSL’s February 2021 offer in response to PMC Bank’s November 2020 expression of interest (EoI) notification.

Unity SFB commenced operations on November 1, 2021.

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PSBs vacating branches open doors for other lenders

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The move by five public sector banks to reduce their branch numbers is proving godsend for lenders looking to expand their network.

The branches being vacated by Bank of Baroda (BoB), Punjab National Bank (PNB), Canara Bank, Union Bank of India (UBI) and Indian Bank have opened the doors to ready-made premises for other lenders. For the latter set, network expansion happens faster, at reasonable costs (as owners of these premises are desperate to rent them out) and without the hassle of re-doing interiors.

To cut down on operating expenses, the five PSBs have been merging or rationalising branches after the amalgamation of banks with them.

AS Rajeev, MD & CEO, Bank of Maharashtra, observed, 25-30 per cent of the branches opened by BoM last year were in the premises vacated by the PSBs. “The rent is comparatively less. That is why our rent outgo is not increasing despite the rise in the number of branches,” he said. BoM, which opened 82 branches last year, plans to open about 100 in FY22.

BK Divakara, CFO, CSB Bank, noted that 30-40 branches opened in 2020 and so far this year have been at premises vacated by a PSB. Divakara said the bank opened 101 branches last year and plans to open 200 this year.

CSB Bank actively scouts for ready-to-move premises being vacated by PSBs to avoid overlap of branches. These premises usually come with a strong-room (constructed to central bank specifications), counters and furnishings.

Branch rationalisation

After the amalgamation of Dena Bank and Vijaya Bank with BoB on April 1, 2019, the latter merged or rationalised 1,310 branches.

PNB rationalised about 430 branches after Oriental Bank of Commerce and United Bank of India were merged with it from April 1, 2020.

Canara Bank merged or closed 105 branches after taking over Syndicate Bank on April 1, 2020.

Union Bank of India merged or closed 275 branches after the amalgamation of Andhra Bank and Corporation Bank with it from April 1, 2020.

Indian Bank rationalised 203 branches after absorbing Allahabad Bank from April 1, 2020.

 

 

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PSBs vacating branches open doors for other lenders

Banking & Finance

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The move by five public sector banks to reduce their branch numbers is proving godsend for lenders looking to expand their network.

The branches being vacated by Bank of Baroda (BoB), Punjab National Bank (PNB), Canara Bank, Union Bank of India (UBI) and Indian Bank have opened the doors to ready-made premises for other lenders. For the latter set, network expansion happens faster, at reasonable costs (as owners of these premises are desperate to rent them out) and without the hassle of re-doing interiors.

To cut down on operating expenses, the five PSBs have been merging or rationalising branches after the amalgamation of banks with them.

AS Rajeev, MD & CEO, Bank of Maharashtra, observed, 25-30 per cent of the branches opened by BoM last year were in the premises vacated by the PSBs. “The rent is comparatively less. That is why our rent outgo is not increasing despite the rise in the number of branches,” he said. BoM, which opened 82 branches last year, plans to open about 100 in FY22.

BK Divakara, CFO, CSB Bank, noted that 30-40 branches opened in 2020 and so far this year have been at premises vacated by a PSB. Divakara said the bank opened 101 branches last year and plans to open 200 this year.

CSB Bank actively scouts for ready-to-move premises being vacated by PSBs to avoid overlap of branches. These premises usually come with a strong-room (constructed to central bank specifications), counters and furnishings.

Branch rationalisation

After the amalgamation of Dena Bank and Vijaya Bank with BoB on April 1, 2019, the latter merged or rationalised 1,310 branches.

PNB rationalised about 430 branches after Oriental Bank of Commerce and United Bank of India were merged with it from April 1, 2020.

Canara Bank merged or closed 105 branches after taking over Syndicate Bank on April 1, 2020.

Union Bank of India merged or closed 275 branches after the amalgamation of Andhra Bank and Corporation Bank with it from April 1, 2020.

Indian Bank rationalised 203 branches after absorbing Allahabad Bank from April 1, 2020.

 

 

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Equitas, Ujjivan SFBs share surges on RBI directive

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Shares of Equitas Small Finance Bank and Ujjivan Small Finance Bank surged on BSE on Monday after the Reserve Bank of India permitted the SFBs and respective holding companies to apply for the scheme of amalgamation.

The scrip of Equitas SFB closed 7.3 per cent higher at ₹69.85 apiece on BSE on Monday. Similarly, Ujjivan SFB shares ended at a gain of 1.48 per cent at ₹30.95 apiece on BSE.

In a stock exchange filing on July 10, Equitas SFB had said it would be initiating steps to finalise the Scheme of Amalgamation, submit it to the Boards of the Bank and EHL for approval and take further action.

“RBI vide its communication dated July 9, 2021 has permitted the bank to apply to RBI, seeking approval for Scheme of Amalgamation. RBI has also conveyed that any ‘no-objection’, if and when given on the Scheme of Amalgamation, would be without prejudice to the powers of RBI to initiate action, if any, for violation of any licensing guidelines or any terms and conditions of license, or any other applicable instruction,” Equitas SFB had said.

Similarly, Ujjivan SFB also had said it would be initiating necessary steps for the amalgamation of Ujjivan Financial Services with the bank according to applicable laws and guidelines.

“RBI vide its letter dated July 9, 2021 has informed the said Association that it has decided to permit small finance banks and respective holding companies to apply for the amalgamation of holding company with small finance banks…three months prior to completing five years from the date of commencement of business of small finance bank,” it had said in a stock exchange filing.

Under RBI guidelines, a promoter of an SFB can exit or cease to be a promoter after the mandatory initial lock-in period of five years, depending on the RBI’s regulatory and supervisory comfort and SEBI Regulations in this regard at that time.

In the case of Equitas SFB, the initial promoter lock-in expires on September 4, 2021.

“…the bank had requested RBI if a Scheme of Amalgamation of the promoter and holding company, Equitas Holdings Limited, with the bank, resulting in exit of the promoter, could be submitted to RBI for approval, prior to the expiry of the said five years, to take effect after the initial promoter lock-in expires,” it said.

According to Ujjivan SFB, the Association of Small Finance Banks of India had in April made a representation to RBI on Dilution of Promoter Shareholding requesting it to grant prior in-principle approval to SFBs for a reverse merger with their respective Holding Companies on completion of initial five years from the date of commencement of business.

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RBI issues guidelines for amalgamation of district central co-op banks with state co-op banks, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank said it will consider amalgamation of District Central Co-operative Banks (DCCBs) with State Cooperative Banks (StCBs) subject to various conditions, including that a proposal should be made by the state government concerned.

The Banking Regulation (Amendment) Act, 2020 has been notified for the StCBs and DCCBs with effect from April 1, 2021. Amalgamation of such banks need to be sanctioned by the Reserve Bank of India.

RBI has come out with the guidelines after a few state governments approached it for amalgamation of DCCBs with StCBs as a two-tier Short-term Co-operative Credit Structure (STCCS).

As per the guidelines, RBI will consider proposals for amalgamation “when the state government of the state makes a proposal to amalgamate one or more DCCB/s in the state with the StCB after conducting a detailed study of the legal framework”.

Besides, there should be a an additional capital infusion strategy, assurance regarding financial support if required, projected business model with clear profitability and proposed governance model for the amalgamated bank.

The scheme of amalgamation has to be approved by the requisite majority of shareholders. Also, NABARD has to examine and recommend the proposal of the state government.

“The proposal for amalgamation of DCCBs with the StCB will be examined by Reserve Bank in consultation with NABARD and the sanction/ approval will be a two-stage process,” the guidelines said.

In the first stage, an ‘in-principle’ approval will be accorded subject to fulfilment of certain conditions, following which the processes for amalgamation may be initiated by all concerned.

After completion of the first stage, NABARD and RBI may be approached for final approval along with compliance report, as per the guidelines.

The guidelines also said that if as a result of share swap ratio based on net worth, shareholders of some DCCBs cannot be allotted any shares, then the state government should infuse sufficient capital in such lenders to ensure that the shareholders are allotted at least one share each.



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LVB-DBS merger: Plea in Delhi HC on LVB share capital write-off

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A shareholder in Lakshmi Vilas Bank has filed a Writ Petition in the Delhi High Court challenging its amalgamation with DBS Bank India.

A clause in the scheme seeks to write off the entire share capital of the troubled lender

The petition, filed by one Sudhir Kathpalia, naming also the Union of India, Reserve Bank of India and DBS as respondents, contended that the merger would leave investors and the Centre and the RBI have failed to protect investors’ rights.

Accordingly, it has sought quashing of clause 7(i) in the merger scheme, which provides for the write off of LVB’s share capital states.

The petition which was listed for January 13 before a bench of Chief Justice DN Patel and Justice Jyoti Singh has been adjourned to February 19 after the Bench was informed that the RBI has moved a plea in the Supreme Court for transfer of all pleas against the amalgamation scheme to the Bombay High Court.

Kathpalia, a lawyer, holds 20,000 shares of LVB.

The petition contended that the scheme of amalgamation was “irregular, arbitrary, irrational, unreasonable, illegal and thus, void”, and the respondent could have demanded protection for shareholders money by asking DBS Bank India to give the shares equivalent to the value of shares last traded on stock exchange post amalgamation.

“The Petitioner wants to categorically state that it is not against the scheme of amalgamation per se but the manner in which investors’ money is being written off.” The amalgamation of the banks was approved by the RBI on November 25, 2020 and the merger took place on November 27.

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