The Reserve Bank of India (RBI) on Tuesday said the government has sanctioned and notified the draft scheme for the amalgamation of Punjab and Maharashtra Cooperative (PMC) Bank with Unity Small Finance Bank (SFB). The final scheme envisages the start of payouts for depositors with over Rs 5 lakh in balance within one year, as against two years in the draft scheme.
Additionally, the final scheme says Unity SFB must use recoveries made from loans given to Housing Development and Infrastructure (HDIL) Group over and above the principal amount to buy back perpetual non-cumulative preference shares (PNCPS) issued to institutional depositors.
“The Government of India has today sanctioned and notified the Scheme for the amalgamation of the Punjab and Maharashtra Co-operative Bank Ltd. (PMC Bank) with Unity Small Finance Bank Ltd. (USFBL). The amalgamation will come into force with effect from the date of the notification of the scheme i.e. January 25, 2022. All the branches of the PMC Bank will function as branches of Unity Small Finance Bank Ltd. with effect from this date,” the RBI said.
Unity SFB, promoted by Centrum Financial Services with BharatPe owner Resilient Innovation as a joint investor, will have to transfer the amount received from the Deposit Insurance and Credit Guarantee Corporation (DICGC) to all eligible depositors of PMC Bank as an amount equal to the balance in their deposit accounts up to Rs 5 lakh, within a 90-day period, as was notified by the DICGC in September.
For those with more than Rs 5 lakh in deposits, the payout for the additional amount will be made in a staggered manner. Up to Rs 50,000 will be paid over the next one year, up to another Rs 50,000 after two years, up to another Rs 1 lakh after three years, up to Rs 2.5 lakh after four years, up to Rs 5.5 lakh after five years, and any remaining amount will be paid after 10 years.
After March 31, 2021, no further interest will be payable on the interest-bearing deposits of PMC Bank for a period of five years. With respect to balances in any current account or any other non-interest bearing account, no interest shall be payable to the account holders. Interest will accrue at the rate of 2.75% per annum and shall be paid on the retail deposits of PMC Bank which remain outstanding after the five year-period. This interest will be payable from the date after five years from the appointed date, or the date of notification of the scheme by the government.
As for institutional depositors, 80% of the uninsured deposits outstanding in various accounts to the credit of each of them shall be converted into PNCPS of Unity SFB with a dividend of 1% per annum payable annually. After 10 years from the appointed date, Unity SFB will use recoveries from the HDIL Group to buy back the PNCPS at face value on a pro rata basis. From the end of the 21st year, the bank will buy back the outstanding principal of the PNCPS, at the rate of at least 1% of the total PNCPS issued under the scheme per annum, subject to some conditions.
The remaining 20% of the uninsured institutional deposits will be converted into equity warrants of Unity SFB at a price of one rupee per warrant. These will further be converted into shares of Unity SFB at the time of the initial public offer (IPO) of the bank. The price for the conversion will be determined at the lower band of the IPO price.
For every other liability of PMC Bank, Unity SFB shall pay only the principal amounts within a period of five years to the creditors in terms of the agreements entered between them prior to the appointed date or the terms and conditions agreed upon. The draft scheme envisaged principal payouts as and when they fell due.
Unity SFB shall have up to 20 years from the appointed date to repay the amount received from DICGC towards payment to the insured depositors, which can be done in one or several instalments. “… the transferee bank shall create a reserve account in its books and make periodical transfers to it as may be approved by Reserve Bank, for the purpose of discharging its liability towards Deposit Insurance and Credit Guarantee Corporation in accordance with the provisions of this Scheme,” the final scheme said.
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