Maharashtra Co-op Bank writes to FM seeking branch merger of PMC Bank

Maharashtra State Co-operative (MSC) Bank has written to Union Finance Minister Nirmala Sitharaman seeking merger of branches of PMC Bank, in case of a takeover of the troubled lender, a top official said on Tuesday.

Any progress on such a scheme can only happen once the exact extent of the fraud and the liabilities arising are ascertained through a forensic audit, MSC Bank Chairman Vidyadhar Anaskar made it clear.

For the branch merger as opposed to bank merger idea, he explained that MSC Bank is an apex bank for cooperatives and Punjab and Maharashtra Cooperative Bank's multi-state presence makes it difficult to execute such a deal.

"We have written to the Finance Minister, suggesting a branch merger and not a bank merger," Anaskar told reporters here.

He said under the proposed scheme, apex banks in Gujarat and other states where PMC has a presence will take over its branches to make it easier for the transaction to go through.

It can be noted that over Rs 11,000 crore in depositor money has been stuck after the RBI decided to put PMC Bank under instructions in September last year, and appointed an administrator on it after discovering mismanagement.

The bank has been found to have given over Rs 6,700 crore loans to a single company - realty player HDIL - through allegedly fraudulent means and also hid the stress from the Reserve Bank of India by creating to separate books of accounts. The police has pegged the extent of fraud at PMC Bank at RS 4,700 crore, while other agencies, including the Enforcement Directorate, are also investigating the matter.

A few months ago, NCP leader and Maharashtra minister Jayant Patil had publicly suggested the idea of merging PMC Bank with MSC Bank.

Anaskar said before any progress on the matter, it is essential to ascertain the extent of the fraud at the lender which can only be done after the RBI's forensic audit in the matter. He, however, also said the RBI may not be averse to a branch merger that the bank is suggesting and such a transaction will not require any changes in laws.

In support of his argument, Anaskar reminisced over six years ago, there was a similar proposal for a branch merger of the troubled Rupee Cooperative bank and the RBI was amenable to the idea. Meanwhile, the MSC Bank also announced that it has sent two separate proposals to the RBI for merging Rupee and City Cooperative Bank with itself, which will require it to allocate over Rs 1,300 crore of capital.

Both the proposals have been presented jointly with the target banks and after ratification by the cooperatives department of Maharashtra government. It will have to allocate Rs 980 crore for the Rupee merger, while the City bank scheme will require it to allocate nearly Rs 300 crore.

The genesis of both the proposals is the bank's desire to de-risk beyond the sugar industry by serving the retail segment, Anaskar said, adding that merging the two urban cooperatives banks with itself will give it a retail heft both in distribution and assets.

The total assets of both the banks are Rs 1,400 crore, which will give MSC Bank a good foothold in the retail category, he said, adding that to start with the entire portfolio will be considered as a loss.

Both the proposals involve a support from the Deposit Insurance and Credit Guarantee Corporation, wherein the deposit holders in both the troubled banks will be paid upfront and the bank will subsequently pay-off the DICGC.

Over a third of the depositors' stuck money is released upfront by the DICGC as liquidity support to make a merger possible and then repaid back by the bank once asset recoveries start, he said.

Anaskar exuded confidence that the RBI will give it a go-ahead on both the mergers in about four months' time, despite its own record of having stuck with a mismanagement three years ago.

He said MSC Bank has a total capital adequacy of over 16 per cent, including core buffers at over 14 per cent, and will be able to take care of a merger like this.

At present, the bank is returning excess capital to the district banks which are its members, Anaskar said.

Rupee has five lakh depositors, while City has over 80,000 depositors.