MUMBAI: Reserve Bank of India-appointed administrator of Punjab and Maharashtra Cooperative (PMC) Bank has come up with a revival strategy where private investors can take over and convert the failed cooperative into a small finance bank. Potential investors have to submit their expressions of interest (EoI) by December 15, 2020.
The investors will have to bring in capital and can also explore options of converting part of deposits to equity besides getting support from the Deposit Insurance and Credit Guarantee Corporation, which can compensate up to Rs 5 lakh per depositors.
The PMC Bank was having total deposits of Rs 10,727 crore, total advances of Rs. 4,473 crore and gross NPA of Rs 3,519 crore as on 31March, 2020. The share capital of the bank is Rs 293 crore. However, the bank registered a net loss of Rs 6,835 crore during 2019-20 and has a negative net worth of Rs 5,850 crore.
This revival plan is a first in many ways. It envisages conversion of a cooperative bank into a private small finance bank. It is also the first time that deposits are sought to be capitalised and finally this would be one of the early cases where DICGC’s enhanced compensation of Rs 5 lakh is extended.
“We are working on finding a way out to resolve the Bank in the best interests of all stakeholders, particularly the depositors. Various models/ options are being considered, and discussions are continuing with different entities in this regard,” said AK Dixit, the RBI appointed administrator in a letter to depositors.
Although there is no explicit offer to the investor of a small finance bank licence, the document inviting expression of interest states that it will be open for the investors to convert the bank into a Small Finance Bank by making an application to Reserve Bank of India for voluntary transition into Small Finance Bank. It also points out that under RBI guidelines, a small finance bank is eligible to transition into a universal bank after a minimum period of five years subject to meeting the prescribed eligibility conditions.
Eligible investors could be Financial Institutions, including banks and NBFCs; and individuals or Group of Individuals/ companies, societies, trusts or any other such entities having adequate net worth.
For potential investors, the attraction of PMC bank would be a 137 branch network with several branches in prime areas of Mumbai suburbs and a depositor base that include high net worth individuals. However, the downside would be the fact that the bank is embroiled in several legal cases as the earlier management had connived with the HDIL group and made available a large chunk of its deposits to the developer.