Longer wait for depositors as RBI extends curbs on PMC Bank till Dec 31

There was considerable buzz among depositors after RBI gave in-principle nod to Centrum Financial Services and BharatPe to set up an SFB in lieu of a restoration scheme of PMC Bank

Depositors stuck in Punjab and Maharashtra Cooperative (PMC) Bank, which went under in 2019, might have to wait till next year to be able to decide on their money because the Reserve Bank of India (RBI) extended its restrictions on the bank till December end, “subject to review”.

There was considerable buzz among depositors after the RBI gave “in principle” approval to Centrum Financial Services, a step-down arm of Centrum Group, and to digital payments provider BharatPe, run by Resilient Innovations, to set up a small finance bank (SFB).

The approval was in lieu of a restoration scheme of PMC Bank.

The RBI on November 3 last year had called for proposals for reconstructing PMC Bank.

Centrum, along with Resilient Innovation, submitted their expressions of interest on February 1, which received the RBI’s “in principle” approval on June 18.

The firms were given 120 days to set up the SFB, which was granted under an “on-tap” licence route. According to the plan, PMC Bank will have to be merged with this SFB subsequently.

“Taking into account the time required for completion of various activities involved in the process”, the RBI said in its notification on Friday it was considered necessary to extend the restrictions in place. They were to end this month. The new restrictions will run from July 1 to December 31, subject to review, the RBI said. 

The firms have jointly planned to infuse Rs 1,800 crore in stages as equity in the new SFB, Jaspal Bindra, executive chairman of Centrum Group, had said, but in the absence of a blueprint for a merger notified by the government or the RBI, it is not clear yet how the PMC Bank’s liabilities will be taken care of.

However, it is clear that the depositors won’t be able to withdraw their money as soon as the SFB comes into existence.

The RBI had put the restrictions for the first time on September 23, 2019, when it was found about two-thirds of the bank’s loan book of Rs 8,000 crore had turned into bad debt due to a fraud perpetrated by the bank’s management and real estate firm HDIL.

Coupled with other bad loans, the non-performing assets (NPAs) of the bank stood at nearly Rs 6,500 crore.

Subsequently, the RBI put PMC under an administrator and restricted withdrawing deposits, which ran into more than Rs 11,000 crore.

The RBI allowed depositors in June 2020 to withdraw up to Rs 1 lakh, which, the central bank said, would take care of 84 per cent of the depositors in the bank. 

The deposits stuck are now about Rs 10,700 crore, including bulk deposits by some medium-sized firms. Even a part of the RBI’s own pension fund is stuck in PMC Bank.

However, the idea of putting restrictions on the bank has been to avoid a run on it.

Deposits of up to Rs 5 lakh are protected under a Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme.