With Rs 7,000 cr stuck, over 20k PMC Bank depositors play waiting game

The draft amalgamation scheme of Punjab and Maharashtra Co-operative (PMC) Bank with Unity Small Finance Bank (SFB) allowed quick relief to depositors with savings of up to Rs 5 lakh, but a long wait for those who had their nest egg with the scam-tainted bank. If the scheme gets approved, 96 per cent (or 880,000 of 924,000) depositors will get their full money straightaway after PMC is merged with Unity SFB.

According to the draft scheme, retail investors may get up to Rs 5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC) instantly, and then some more in phases till they can recall their full deposits after 10 years.

However, they will not get any interest accrued on their deposits for five years after March 31, 2021.

According to the scheme released by the Reserve Bank of India (RBI) on its website, depositors having up to Rs 10 lakh in savings can expect to withdraw most of it in four years. But depositors having more than Rs 15 lakh in savings will have to wait five years. Those with more than Rs 15 lakh in savings will get their money only after 10 years.

The troubled multi-state co-operative bank has 924,345 depositors, of which, 20,645 depositors have deposits of more than Rs 10 lakh. The amount stuck is Rs 7,126 crore, which is 60 per cent of the total Rs 11,800-crore in deposits.

This is a draft, not the final decision, which must come from the government. Comments on this draft can be sent to the RBI till December 10. The RBI will take a final view thereafter. In a statement, Unity SFB said the draft scheme rescued PMC Bank from liquidation and has protected the interests of all stakeholders.

“Ninety-six per cent of all depositors will get immediate access to their full deposits, 99 per cent of retail depositors to be paid in full by the fifth year, and 100 per cent of retail depositors to be paid in full by the tenth year,” said Unity SFB, adding institutional depositors will receive preference shares (80 per cent) and equity share warrants (20 per cent) in lieu of total deposits. The draft scheme said 1,100 PMC Bank employees will remain employed.

Here is how the break-up works for the depositors:

The DICGC will pay Rs 5 lakh guaranteed deposits upfront to the bank for paying the retail depositors. The bank will have 20 years to repay this amount to the DICGC. If the proposed scheme is finalised, Unity SFB — which has been converted into a bank from a non-banking financial company — will not have to pay anything to depositors now. The amount that will be paid now — around Rs 3,100 crore to 880,000 depositors — will be from DICGC.

The scheme suggested deposits up to Rs 5 lakh will be returned now, another Rs 50,000 after two years. Another Rs 1 lakh (total Rs 6.5 lakh) withdrawal is allowed after three years, and another Rs 3 lakh after four years (Rs 9.5 lakh); then another Rs 5.5 lakh after five years. In total, depositors with deposits up to Rs 15 lakh will get the entire money after five years.

Depositors with over Rs 15 lakh can deposit their entire money only after 10 years. The remaining deposits would be paid after 10 years, on demand.

“No further interest will be payable on interest-bearing deposits of the transferor bank for a period of five years from the appointed date,” said the draft. “Around 37 per cent of PMC Bank depositors are senior citizens. They have to wait for that long to get their own money back,” said an aggrieved depositor.

Some of the depositors said they would protest against the draft scheme. Balances in the current account will not get any interest, but after five years, retail deposits can get 2.75 per cent per annum.  

“This interest will be payable from the date after five years from the appointed date,” the draft said.

“No depositor or creditor of the transferor bank shall be entitled to make any demand against the transferor bank or the transferee bank in respect of any liability of the transferor bank to him, except to the extent specified by the scheme,” the RBI said in its draft for amalgamation.

Unity SFB, promoted by Centrum Financial Services and Resilient Innovation, will have to create a reserve account on its books and make periodical transfers to the DICGC, as approved by the RBI. The PMC Bank, under administration now, will cease to exist from November 22.

Unity SFB, which was given a licence under the condition it would acquire PMC, started its operation from November 1. The merger date, or the ‘appointed date’, will be announced separately by the government.

From the appointed date, 80 per cent of the uninsured deposits outstanding of each institutional depositor of PMC will be converted into perpetual non-cumulative preference shares (PNCPS) of the new bank, with dividend of 1 per cent per annum payable annually.

After 10 years from the appointed date, Unity SFB may consider additional benefits for such PNCPS holders — either in the form of providing a step-up in coupon rate or a call option.

“The remaining 20 per cent of the institutional deposits will be converted into equity warrants of the transferee bank at a price of Rs 1 per warrant,” said the RBI.

“These equity warrants will further be converted into equity shares of the transferee bank at the time of the initial public offering (IPO) when the transferee bank goes for a public issue. The price for such conversion will be determined at the lower band of the IPO price,” the draft amalgamation scheme said.

The promoters of Unity SFB infused a capital of Rs 1,105 crore, and a further equity warrant of Rs 1,900 crore promised to the bank by promoters can be exercised anytime within eight years.