Explained: Why scam-struck PMC Bank passed to new owner Centrum and if depositors will get their money back

Fasts unto death, more than a hundred suicides, sit-in protests, the 9 lakh-odd depositors of the Punjab and Maharashtra Cooperative Bank have gone through a lot since the RBI fired the bank's management in 2019 over grave irregularities. The silver lining came in June when the Central bank announced that it has given a provisional nod to financial services firm Centrum to take over PMC Bank.

Depositors are now hopeful that they will finally be able to withdraw their money parked with the bank, but there are many stages to be cleared before that happens.

How did Centrum enter the picture?

Centrum Financial Services Ltd is not a bank but a non-banking financial services (NBFC) firm. What RBI has done is to extend an "in-principle" approval to Centrum to set up a small finance bank that would eventually take over the PMC Bank. But the actual licence for starting banking operations will follow only when the Central bank is "satisfied that the applicant has complied with the requisite conditions laid down by RBI as part of “in-principle” approval.

RBI clarified in the release dated 18 June that the "in-principle" approval has been extended specifically following Centrum’s offer in February to an announcement by PMC Bank seeking expression of interest. Digital payments company BharatPe has partnered Centrum in the move to take over PMC Bank operations.

Will depositors get their money back?

While the RBI announcement was greeted positively by PMC Bank depositors, many have pointed out that there is no clarity as yet on when they can get their money back. But the process hinges on a lot of factors. First, the Centrum-BharatPe entity will need to win an SFB licence because at the moment they have only received an in-principle nod for the same.

After that, the assets and liabilities of PMC Bank will have to be merged with the new entity. Ashneer Grover, co-founder and chief executive officer of BharatPe, told Moneycontrol in an interview that they were "hopeful (that) by the fourth quarter of this calendar year, we should have the bank up and running and everyone should be able to access the deposits and business as usual".

But for many depositors, patience may be wearing thin and they criticised the RBI move, saying that the Central bank should have gone for an existing public sector or private bank to take over PMC Bank and not an entity that has no prior experience of running a bank.

How many depositors are yet to withdraw their money?

After major irregularities had come to light in the running of PMC Bank in September 2019, the RBI had superseded the bank's board and put curbs on the withdrawal of money by depositors to prevent a run on the bank. Initially, customers were allowed to withdraw only up to Rs 1,000 per account with that threshold slowly being increased to Rs 1 lakh. In June last year, when it upped the withdrawal limit to Rs 1 lakh, RBI had said that the new order would allow more than 80 percent of the depositors to withdraw their complete balance.

However, that still leaves the bigger depositors who saw their money stuck in the bank.

Depositors who are yet to get back their money had said after RBI's announcement that they will move Bombay High Court for speedy clearance of their dues as they had already waited 20 months since the scam came to light.

What was the PMC Bank scam?

In September 2019, RBI found that more than 70 percent of a total of over Rs 8,000-crore in loans made by PMC Bank had gone to just one entity, the Mumbai-based Housing Development Infrastructure Ltd. While having such a large chunk of its loan book committed to just one entity was in itself wrong, it also came to light that the loan had gone bad as there had been no servicing.

But despite non-payment by the borrowers, the bank did not disclose to RBI that the loans had become non-performing advances.

As an inquiry was launched, it came to light that bank officials had created an elaborate scheme of fudging lending data by creating fake accounts and hiding the actual loan amounts. Looking to bring the situation under control, RBI applied restrictions on the withdrawal of money by depositors and superseded the PMC Bank board.