The new entity has to be operational in the next 120 days and only when that is done, will the RBI draft a scheme on amalgamation with PMC Bank.
Nearly two years after the Reserve Bank of India seized the Punjab and Maharashtra Cooperative Bank (PMC) on September 24, 2019, capped cash withdrawals, and launched an investigation into its accounting lapses, there is finally some good news for its depositors.
The Reserve Bank of India (RBI) on Friday cleared the decks for the takeover of Punjab and Maharashtra Cooperative Bank (PMC) by a consortium of the non-bank lender, Centrum Financial Services and fintech startup BharatPe. The central bank has however not come out with the details of the proposed acquisition of PMC Bank.
The acquisition
In February, Centrum Financial Services and BharatPe had submitted a joint proposal to take over PMC Bank.
Centrum Financial Services is a step-down subsidiary of listed entity Centrum Capital.
It provides credit to small and mid-sized companies ranging from Rs 2 lakh to Rs 2 crores.
Resilient Innovations Pvt Ltd, which operates BharatPe, will be an equal partner in the small finance bank.
RBI said it has decided to grant in-principle approval to Centrum to set up a small finance bank under on-tap licensing norms.
On-tap licensing refers to the regulator giving out bank licences on a continuous basis, rather than once in several years.
Hope for PMC depositors to get back their money?
The RBI move comes as a relief to depositors of the cooperative bank, whose funds have been stuck for close to two years now.
The PMC Bank depositors are likely to get back the money stuck as fixed deposits if we go by the norms of previous bank mergers.
When the SBI-led consortium bailed out Yes Bank last year, none of the depositors lost their money.
However, banking experts say that the repayment to depositors will depend on the scheme agreed between the RBI and Centrum-BharatPe.
The main issues are whether the RBI will allow Centrum to convert part of liabilities (deposits) into equity capital.
Or will investors get back only up to the amount insured with the Deposit Insurance and Credit Guarantee Corporation (DICGC)?
The primary difference between a universal bank and a small finance bank is the presence of certain lending stipulations for the latter.
While a universal bank can lend freely, a small finance bank has to largely focus on the priority sector and small ticket loans.
The Process
The new entity has to be operational in the next 120 days and only when that is done, will the RBI draft a scheme on amalgamation with PMC Bank.
The plan will then be sent to the Union government for approval and official notification.
Under Section 45 of the Banking Regulation Act, only a bank can be merged with another and, therefore, the process will start only once the small finance bank is created.
Status of PMC Bank
RBI initially capped cash withdrawals at Rs 1,000 per account for six months which was gradually relaxed 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 on March 31, 2020.
Its gross non-performing assets were at Rs 3,519 crore in FY20, up from Rs 315 crore in FY19, according to its website.
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