Tag: PMC

PMC Bank’s institutional depositors may have to wait for Unity IPO to get money back, BFSI News, ET BFSI

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Depositors of PMC Bank are set for an agonising wait of ten years till they get their money back.

The Reserve Bank has come out with a draft scheme for the takeover of the crisis-hit PMC Bank by the Delhi-based Unity Small Finance Bank (USFB).

The draft scheme of amalgamation envisages the takeover of the assets and liabilities of PMC Bank, including deposits, by USFB, thus giving a greater degree of protection for the depositors, the RBI said.

In a statement issued later, USFB said with the draft scheme ’96 per cent of all depositors will get immediate access to their full deposits’.

It said 99 per cent of the retail depositors will be paid in full by the fifth year and 100 per cent of retail depositors to be paid in full by the tenth year.

Retail depositors

According to the scheme deposits up to Rs 5 lakh can be claimed by depositors over a period of three to ten years.

The scheme says that depositors can claim up to Rs 50,000 at the end of three years and further can claim Rs 1 lakh at the end of four years, Rs 3 lakh at the end of five years and Rs 5.50 lakh at the end of 10 years. The RBI had doubled the amount depositors can withdraw from PMC Bank to Rs 1 lakh from Rs 50,000 in June 2020, allowing more than 84% of the depositors to withdraw their entire account balance.

RBI said the above limits are for depositors are over and above the withdrawals already made.

According to this schedule, the entire remaining deposits of PMC Bank depositors will be paid back within 10 years from the date the central government notifies this scheme of amalgamation. Further, the central bank has clarified that interest on these deposits shall not accrue after March 31, 2021, for five years.

PMC Bank's institutional depositors may have to wait for Unity IPO to get money back

“No further interest will be payable on the interest-bearing deposits of transferor bank for a period of five years from the appointed date. Provided further that interest at the rate of 2.75 per cent per annum shall be paid on the retail deposits of the transferor bank (PMC) which shall be remaining outstanding after the said period of five years from the appointed date. This interest will be payable from the date after five years from the appointed date,” RBI said.

Institutional depositors

About 80% of uninsured institutional deposits will be converted into Perpetual Non-Cumulative Preference Shares (PNCPS) of Unity SFB with dividend of one per cent per annum payable annually.

After ten years from the appointed date, Unity SFB may consider additional benefits for PNCPS holders either in the form of providing a step up in coupon rate or a call option, upon receipt of approval from the Reserve Bank.

The remaining 20% of the institutional deposits will be converted into equity warrants of Unity SFB at a price of Re.1 per warrant. These equity warrants will further be converted into equity shares of the Unity SFB at the time of the Initial Public Offer (IPO) when it goes for one.

“In respect of every other liability of the transferor bank (PMC) the transferee bank (Unity) shall pay only the principal amounts, as and when they fall due,to the creditors in terms of the agreements entered between them prior to the appointed date or the terms and conditions agreed upon,” RBI said.

PMC Bank's institutional depositors may have to wait for Unity IPO to get money back

In June, RBI had given an in-principle approval to Unity SFB, a joint venture of Centrum Financial Services and Resilient Innovations Pvt. Ltd which runs payments company BharatPe to take over PMC. Unity started operations as recently as November 1.

PMC Bank had 137 branches and deposits of around Rs 11,600 crore, at the time restrictions were announced.

Employees

The draft also said all the employees of the PMC Bank shall continue in service on the same remuneration and terms and conditions of service for three years from the appointed date.

“The draft scheme provides much needed relief and clarity to over 1,100 PMC Bank employees, who will remain employed and continue uninterrupted service to clients,” USFB said in the statement.

The RBI said, “The transferee bank (USFB) may discontinue the services of the key managerial personnel of the transferor bank after following the due procedure at any time, after the appointed date, as it deems necessary and providing them compensation as per the terms of their employment”.



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PMC Bank’s retail depositors face long wait to get full money, BFSI News, ET BFSI

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MUMBAI: Retail depositors with over Rs 15 lakh in Punjab and Maharashtra Cooperative (PMC) Bank will have to wait for 10 years to get all their money back. The timeline is in terms of a resolution plan drawn up by the RBI, which involves the defunct cooperative lender’s amalgamation with the newly formed Unity Small Finance Bank (SFB).

The resolution of PMC Bank through private investment using the SFB licence route is the first time such an exit option has been adopted for stakeholders in a failed bank.

Institutional depositors, including cooperative housing societies and cooperative credit societies which have deposits in the bank, will end up taking a haircut. The resolution plan envisages 80% of their funds being converted into perpetual non-cumulative preference shares with a dividend of only 1% per annum. After 10 years, the bank can decide if it wants to increase the dividend or repay investors. The remaining 20% of institutional funds will be converted into equity warrants of Unity SFB at Re 1 per warrant. These warrants will be converted into shares whenever Unity SFB floats a public issue. For retail investors, interest at the rate of 2.75% will be paid on deposits that are outstanding after five years from the date of notification of the scheme.

The draft proposals will be finalised and implemented through a government notification after taking into account suggestions and objections up to December 10, 2021. Going by experience, major changes are unlikely under the scheme as there is a huge gap between the assets and liabilities of the bank due to large-scale fraud and there are no other bidders to take over the business.

“Given the financial condition of the PMC Bank, and in the absence of proposals for capital infusion, the bank was not viable on its own. In that event, the only course of action could have been the cancellation of its licence and taking it for liquidation, wherein depositors would have received payment up to the insurance ceiling of Rs 5 lakh,” the RBI said.

Unity SFB, which has been promoted by Centrum and Bharat Pe, said that 96% of all depositors will get immediate access to their deposits and 99% will get paid in full by the 5th year. It added that the scheme saves the bank from liquidation and protects the interest of stakeholders.

“The draft scheme provides much-needed relief and clarity to over 1,100 PMC Bank employees, who will remain employed and continue uninterrupted service to clients,” the statement said. It added that the bank was operationalised in record time after RBI’s approval on October 12, 2021. “Our shareholders have committed capital of over Rs 3,000 crore through cash and warrants which will be used to build a strong foundation for the bank,” the SFB said.



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HC rejects Rakesh Wadhawan’s medical bail plea, BFSI News, ET BFSI

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The Bombay High Court on Thursday refused to grant bail on health grounds to jailed businessman Rakesh Wadhawan, accused of money laundering in the multi-crore Punjab and Maharashtra Co-operative (PMC) Bank fraud case. Wadhawan, founder of Housing Development Infrastructure Limited (HDIL), was arrested by the Enforcement Directorate in 2019 in the case.

A single bench presided over by Justice Nitin Sambre said that Wadhawan’s submission that he was immediately required to be released on temporary bail on medical ground, was “not justified”.

It said that denial of medical bail was in no way a breach of Wadhawan’s fundamental right to life since he had been provided adequate medical treatment by the state prison authorities whenever required.

Wadhawan, who recently underwent a surgery for pacemaker implantation, had sought that he be released on bail so that he can seek discharge from the civic-run KEM Hospital in the city, where he is recuperating currently while in judicial custody, and shift to a private hospital while out on bail.

Wadhawan had said in his plea that he suffered from severe co-morbidities, that his immune system had been compromised after having contracted COVID-19 recently, and that he was susceptible to contracting infections and ailments while at the civic hospital due to the heavy footfall the hospital received.

He further said that the KEM Hospital did not have an ICU facility specifically meant for those suffering from cardiac issues.

State’s counsel Prajakta Shinde, however, objected to Wadhawan’s bail plea.

She pointed out that he had been provided timely and specialised medical treatment at state-run and civic hospitals by the state prison authorities from time to time since his arrest.

Shinde said the KEM Hospital authorities had themselves recommended that Wadhawan be shifted to another hospital for the pacemaker implantation surgery since the hospital didn’t have such facility. However, now that the surgery was over, Wadhawan could continue his medical treatment at KEM.

Shinde also submitted documents to show that KEM hospital was currently undergoing renovations and arrangements were being made to set up a cardiac ICU within a few weeks.

The court took note of the state’s submissions and agreed that Wadhawan had indeed been provided the “best possible” medical treatment by the state prison authorities whenever required.

“In the backdrop of aforesaid (treatment having been provided by state authorities), it cannot be inferred that right of the applicant guaranteed under Article 21 of the Constitution for having proper medical treatment in super-speciality hospital is violated,” the high court said.

“Rather, various medical treatments which are given to the applicant are proved to be life-saving at this stage. The claim put forth by the applicant that he is immediately required to be released on temporary bail on medical ground is not justified. It lacks merit and stands rejected,” it added.

The court, however, granted Wadhawan the liberty to approach the court in case of any emergency.



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Banking venture of Centrum Financial Services christened Unity SFB

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Centrum Financial Services Ltd (CFSL) has christened its proposed banking venture as Unity Small Finance Bank (SFB).

Unity SFB, which has its registered office in New Delhi, currently has three Directors — Jaspal Singh Bindra, Executive Chairman, Centrum Capital Ltd (CCL); Sriram Venkatasubramanian, CFO, CCL; and Ranjan Ghosh, MD & CEO, CFSL.

Tally Solutions and Cosmea Financial Holdings apply to RBI for SFB licence

The SFB will eventually take over the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank. Currently, there are 11 SFBs in the country.

Revamp of operations

RBI had accorded “in-principle” approval to CFSL, which is a wholly-owned subsidiary of CCL, on June 18, 2021, to set up an SFB. This approval was in specific pursuance to CFSL’s February 2021 offer in response to PMC Bank’s November 2020 Expression of Interest (EoI) notification.

Depositors of PMC Bank still await clarity on withdrawals

Under the “in-principle” approval, CFSL will first operationalise Unity SFB in 120 days. Thereafter, the RBI will place in public domain a draft scheme of amalgamation of PMC Bank with the SFB. The last step will be the government sanction for the scheme.

Mobile payments firm BharatPe is expected to be an equal partner in Unity SFB.

In the run-up to the formation of the SFB, CCL announced a restructuring of its operations, whereby its board approved the sale of the entire business of two wholly-owned material subsidiaries — CFSL and Centrum Microcredit Ltd — to its proposed step-down subsidiary (proposed SFB), subject to members’ and other requisite statutory and regulatory approvals.

Pooling of business of the aforementioned subsidiaries into the proposed SFB is required to be done as per the “in-principle” approval received from the RBI to set up the SFB, CCL said in an exchange filing on August 24.

The consideration for the sale of the entire business of CFSL and Centrum Microcredit to the proposed SFB is ₹316 crore and ₹110 crore, respectively, per the filing. This sale is subject to adjustments for any material change in financial status till effective date of the business transfer.

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Depositors of stressed 23 cooperative banks including PMC to get up to Rs 5 lakh back, BFSI News, ET BFSI

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Depositors of stressed banks like Punjab & Maharashtra Cooperative (PMC) Bank are now set to get up to Rs 5 lakh back from November 30 as the government has notified the amendment to the DICGC Act.

Parliament earlier this month passed the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021 ensuring that account holders get up to Rs 5 lakh within 90 days of the RBI imposing moratorium on the banks.
The amount of Rs 5 lakh would be provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
The government has notified September 1, 2021 as the date on which the provisions of the Act shall come into force, according to a gazette notification dated August 27, 2021.

“In exercise of the powers conferred by sub-section (2) of section 1 of the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021 (30 of 2021), the Central Government hereby appoints the 1st day of September, 2021, as the date on which the provisions of the said Act shall come into force,” it said.

Effective date

Consequently, 90 days from the effective date is November 30, 2021 for depositors to get their funds back.

The first 45 days are meant for the bank, which has come under stress, to collect all the details of the accounts where the claims will have to be made. This will then be forwarded to the insurance company, which in real-time will check it all up, and nearer the 90th day, depositors will get the money, Finance Minister Nirmala Sitharaman had said.
The benefit will also accrue to the depositors of 23 cooperative banks which are in financial stress and on which the Reserve Bank of India (RBI) has imposed certain restrictions.

DICGC, a wholly-owned subsidiary of the RBI, provides insurance cover on bank deposits. At present, it takes 8-10 years for the depositors of a stressed bank to get their insured money and other claims.

Cooperative bank failures

Though the RBI and the Centre keep monitoring the health of all banks, there have been numerous recent cases of lenders, especially cooperative banks, being unable to fulfil their obligations towards the depositors due to the imposition of a moratorium by the RBI.

Last year, the government increased the insurance cover on deposits by five times to Rs 5 lakh. The enhanced deposit insurance cover of Rs 5 lakh came into effect from February 4, 2020. Every bank used to pay 10 paise as an insurance premium per Rs 100 of deposit.



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Centrum Financial Services to set up SFB to take over PMC

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Centrum Financial Services Ltd (CFSL) has initiated the process of establishing a small finance bank (SFB), which will eventually take over the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank, by taking steps towards creating necessary infrastructure in this regard, according to the Reserve Bank of India (RBI).

The RBI had accorded “in-principle” approval to CFSL on June 18, 2021, to set up an SFB. This approval was in specific pursuance to CFSL’s offer in response to PMC Bank’s Expression of Interest (EoI) notification.

CFSL, which is a non-banking finance company, and Resilient Innovations Pvt Ltd (BharatPe), which is a fintech company, are equal partners in setting up the SFB.

Petition nixed

In an additional affidavit filed in the Delhi High Court in the Bejon Kumar Mishra (petitioner) versus Union of India & Others (Respondents) case, RBI said: “It is envisaged that Central government will be approached for approval and notification of a scheme of amalgamation of PMC Bank with the proposed SFB under Section 45 of the Banking Regulation Act after the proposed SFB starts functioning.” The RBI has sought the dismissal of the writ petition filed by Mishra

The central bank submitted that all efforts are underway to expedite the resolution of PMC Bank in the best possible manner and in the larger interest of all depositors of that Bank.

Also read: Depositors of PMC Bank still await clarity on withdrawals

Mumbai-based PMC Bank was placed under All Inclusive Directions with effect from close of business on September 23, 2019, on account of major financial irregularities (fraud perpetrated by a real estate group), failure of internal control and systems of the bank and wrong/ under-reporting of its exposures under various off-site surveillance reports.

The bank has been under directions for close to two years now and depositors, especially senior citizens, have been finding it difficult to make ends meet.

Deposit withdrawal has been capped at ₹1 lakh per depositor during the entire period the bank is under directions.

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RBI to HC, BFSI News, ET BFSI

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New Delhi: The Reserve Bank of India (RBI) Monday told the Delhi High Court that it has given in-principle approval for setting up a small finance bank that will take over the scam-hit PMC Bank soon. A bench of Justices D N Patel and Justice Jyoti Singh granted time to the RBI to file an affidavit on the development in the matter and listed the case for further hearing on August 20.

Senior advocate Jayant Bhushan, representing the RBI, submitted that it has given in-principle approval to Centrum Finance Services Ltd to set up a small finance bank that will take over Punjab and Maharashtra Cooperative (PMC) Bank very soon as the process is near completion.

He said this will ease the trouble faced by the bank’s customers who are unable to withdraw their money.

The court was hearing an application by consumer rights activist Bejon Kumar Misra seeking directions to the RBI to consider other needs of PMC Bank depositors such as education, weddings and dire financial position, not just serious medical emergencies as being done at present.

The application was filed in Misra’s main PIL seeking directions to the RBI to ease the moratorium on withdrawals from the PMC Bank during the coronavirus pandemic.

Advocate Shashank Deo Sudhi, representing Misra, submitted that more than five dates have been given to the authorities and the hard-earned money of the depositors has not been released.

At least senior citizens are allowed to withdraw their money up to Rs 5 lakh as they are suffering from hardship and the depositors are unable to withdraw their own money.

The high court had earlier said that according to the Supreme Court‘s decision on withdrawal of money by depositors of PMC bank for exigencies, exceptions can be carved out for urgent medical and educational requirements.

The court had asked the depositors, whose needs have been highlighted before the court in a PIL, to once again approach the RBI-appointed administrator of PMC bank giving details of their financial needs along for medical or educational reasons within three weeks.

RBI had earlier argued that while it sympathises with the plight of the depositors, everyone would have some or other financial emergency; and if Rs 5 lakh was released to all, as provided in case of medical emergencies, the bank would be in difficulty and depositors would not get their entire deposits back.

RBI had said it was trying to keep the bank functioning in the interests of the depositors and had floated an expression of interest for investing in it and has received some bids.

The PMC Bank has been put under restrictions, including limiting withdrawals, by the RBI, following the unearthing of a Rs 4,355-crore scam.



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NCUI, BFSI News, ET BFSI

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Cooperative body NCUI has welcomed the RBI’s in-principal nod to Centrum Financial Services for the takeover of PMC Bank, but said all depositors should get back their deposits without any condition. Paving the way for the takeover of crisis-ridden Punjab and Maharashtra Cooperative Bank (PMC), the Reserve Bank of India on Friday granted in-principle approval to the Centrum Financial Services to set up a small finance bank.

Centrum Financial Services was one of the applicants for the takeover of the PMC Bank.

Reacting to RBI’s in principle approval to Centrum Financial Services, NCUI President Dileep Sanghani in a statement said, “This is indeed welcome. However, it should be ensured that all the depositors should get back their deposits without any conditionality.”

However, he said it would have been better if all the big UCBs should have mobilised the funds together to revive the bank.

National Federation of Urban Cooperative Banks and Credit Societies Ltd (NAFCUB) President Jyotindra Mehta said, “This is in accordance with the wishes of the sector, and the depositors. This will no doubt boost the image of the sector. However, the culprits who committed the fraud in the bank must be punished.”

GH Amin, Chairman, Cooperative Bank of India, and Chairman, Gujarat State Cooperative Union welcomed the move. “It is a good gesture, of taking over a crisis-hit bank by a small finance bank, and reviving it. The depositors will get an assurance of getting back their deposits.”

National Federation of State Co-operative Banks Ltd (NAFSCOB) MD Bhima Subrahmanyam said, “The move is indeed appreciable. However, all the depositors should get back their deposits without any conditionality”.

Large urban cooperative banks should have taken over PMC Bank and started a small finance bank, as the PMC had an excellent image before the fraud happened, he added. Subrahmanyam is also President International Cooperative Banking Association.

On Friday, the RBI gave ”in-principle” approval to the Centrum Financial Services Limited’s offer of February 1, 2021, for the takeover of PMC Bank Ltd.

The PMC Bank had invited Expression of Interest (EoI) from eligible investors for investment/ equity participation for its reconstruction and had received four proposals.

In September 2019, the RBI had superseded the board of PMC and placed it under regulatory restrictions, including cap on withdrawals by its customers, after detection of certain financial irregularities, hiding and mis-reporting of loans given to real estate developer HDIL.

The restrictions have been extended several times since then. PMC’s exposure to HDIL was over Rs 6,500 crore or 73 per cent of its total loan book size of Rs 8,880 crore as of September 19, 2019.

Initially, the RBI had allowed depositors to withdraw Rs 1,000 which was later raised to Rs 1 lakh per account to mitigate their difficulties.

In June 2020, the RBI had extended the regulatory restrictions on the cooperative bank by another six months till December 22, 2020.

As of March 31, 2020, PMC Bank”s total deposits stood at Rs 10,727.12 crore and total advances at Rs 4,472.78 crore. Gross non-performance assets of the bank stood at Rs 3,518.89 crore at end-March, 2020.



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PMC Bank depositors may get higher payout as it turns into SFB, BFSI News, ET BFSI

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The Reserve Bank of India is looking to ensure that the depositors of Punjab and Maharashtra Coop (PMC) Bank get a higher payout than the Rs 5 lakh assured by the Deposit Insur­ance and Credit Guarantee Corporation.

The new promoters may have to infuse additional capital of nearly Rs 750 crore against the Rs 300 crore minimum capital requirement for a small finance bank (SFB), which the PMC Bank would be converted to, according to a report.

The issue is likely to be taken up in the board meeting of the Reserve Bank of India on March 19. The deadline for resolution is March 31, 2021.

The status

The 37-year-old multi-state co-operative bank, which has been under an administrator since 2019, has an outstanding of over Rs 10,368 crore to depositors. It posted a net loss of Rs 6,835 crore with a net worth of negative Rs 5,850.61 crore. About Rs 4,000 crore in deposits fall are under the Rs 5-lakh sum insured category.

In September 2019, RBI had placed PMC Bank under various restrictions after detection of financial irregularities in loans given to real estate developer HDIL. Its exposure to HDIL was over Rs 6,500 crore or 73 per cent of its total loan book size of Rs 8,880 crore as of September 19, 2019.

The suitors

A diverse set of investors — including a German firm marketing pharmaceutical products, two offshore investors based in Mauritius, and an overseas corporate entity in Dubai — are part of a consortium that has bid for the failed lender Punjab & Maharashtra Co-operative (PMC) Bank.

The consortium, led by Surinder Mohan Arora, an Indian businessman, submitted a plan on February 1, 2021, for revival and conversion of PMC Bank into a small finance bank (SFB.). The foreign investors are Alfa Pharma GmbH, Aegis Investment Fund (Mauritius), NexPact (Mauritius), Global Com Fin Investment LLC (Dubai).

These entities, along with Avtar Instalments, a Delhi-based closely-held company, will finalise their investments, which could add up to more than Rs 6,000 crore, after an in-principle approval from RBI.

According to Arora’s revival proposal, deposits up to Rs 5 lakh would be paid from the money released by Deposit Insurance & Credit Guarantee Corporation while the balance deposit would be converted into interest-bearing fixed deposits and Tier-2 bonds.

The other two bidders are financial services firm Centrum along with fintech platform BharatPe; and Liberty Group of UK.



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HC to RBI, BFSI News, ET BFSI

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The Delhi High Court on Monday said that according to the Supreme Court’s decision on withdrawal of money by depositors of scam-hit PMC bank for exigencies, exceptions can be carved out for urgent medical and educational requirements.

A bench of Chief Justice D N Patel and Justice Jyoti Singh asked the depositors, whose needs have been highlighted before the court in a PIL, to once again approach the RBI-appointed administratorof PMC bank giving details of their financial needs along for medical or educational reasons within three weeks.

The bench asked the administrator to look into the applications by the depositors and take a decision within a further period of two weeks and communicate the same to the court before the next date of hearing on February 26.

During the hearing, the Reserve Bank of India (RBI) told the court that the apex court asked it to consider the educational and medical requirements of depositors as per directives issued by the top bank.

RBI said its directives only provide for considering medical emergencies and not educational emergencies which everyone would have.

The bench, however, said the apex court has clearly mentioned both medical and educational emergencies and it was going to go by that.

The court was hearing an application by consumer rights activist Bejon Kumar Misra seeking directions to the RBI to consider other needs of PMC Bank depositors such as education, weddings and dire financial position, not just serious medical emergencies as being done at present.

The application was filed through advocate Shashank Deo Sudhi in Misra’s main PIL seeking directions to the RBI to ease the moratorium on withdrawals from the Punjab and Maharashtra Cooperative (PMC) Bank during the coronavirus pandemic.

Sudhi, during the hearing, contended that the apex court order had come when the situation was normal and now during the pandemic, the depositors have been able to withdraw only a total of Rs one lakh since restrictions on withdrawals from the bank was imposed by RBI in September 2019.

He argued that it was very difficult for depositors to meet their various needs from just Rs one lakh in more than a year.

RBI argued that while it sympathises with the plight of the depositors, but everyone would have some or the other financial emergency and if money to the tune of Rs five lakh was released to all, as provided in case of medical emergencies, the bank would go under and depositors would not get their entire deposits back.

RBI said it was trying to keep the bank functioning in the interests of the depositors and had floated an expression of interest for investing in it and has received some bids.

The PMC Bank has been put under restrictions, including limiting withdrawals, by the RBI, following the unearthing of a Rs 4,355-crore scam.



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