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PMC Bank depositors plan to move Bombay High Court seeking early refund, merger with a running bank

Moneycontrol logo Moneycontrol 20-06-2021 Dinesh Unnikrishnan
a group of people walking on a city street: PMC Bank depositors plan to move Bombay High Court seeking early refund, merger with a running bank © Dinesh Unnikrishnan PMC Bank depositors plan to move Bombay High Court seeking early refund, merger with a running bank

Aggrieved depositors of crisis-ridden Mumbai-based Punjab and Maharashtra Co-operative Bank (PMC) are planning to move the Bombay High Court seeking urgent resolution of the crisis and early refund to depositors, citing lack of clarity from the bank or the regulator on a clear time-frame to refund the depositors.

Depositors may also seek a merger of PMC Bank with any of the running private or public sector banks arguing that it will enable a quicker resolution, Manjeet Sabharwal, PMC Bank Depositors Action Team coordinator in Mumbai told Moneycontrol on June 20. The depositors are planning to move the petition against the Reserve Bank of India (RBI) and PMC Bank Board, Sabharwal said.

"We are planning to move the Bombay High Court within the next few days and are currently preparing the petition in consultation with our lawyers. We are in no position to wait for another four to six months for deposit refund. It has been 20 months since the crisis began. How long can we wait?" asked Sabharwal.

On June 18, the RBI granted 'in-principle' approval to Centrum Financial Services Limited to set up a small finance bank (SFB), paving the way for the entity to take over the PMC Bank. This 'in-principle' approval has been accorded in specific pursuance to Centrum Financial Services Limited’s offer dated February 1, 2021, in response to the Expression of Interest notification dated November 3, 2020, published by the PMC Bank, the RBI said.

It is learned that the PMC Bank depositors aren't happy with the choice of Centrum as the potential acquirer of PMC Bank. "Only a running bank, private or public, can resolve our issues at the earliest. We are interested only in an early resolution. That's what matters to us. Over 150 lives have been lost in connection with the PCM Bank crisis," said Sabharwal, whose family has a 'significant' amount deposited in the co-operative bank.

Granting approval to Centrum, the RBI said the approval is under the general “Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector” dated December 5, 2019.

On 20 June, in an exclusive interview to Moneycontrol, Jaspal Bindra, Executive Chairman, Centrum Group, said the actual PMC resolution will come through a Section 45 scheme, which will have to be approved and notified by the Government of India.

"What permutation or combination they will choose, we don’t know yet. So, it is premature. All we are saying and the assurance we are able to give you as well is that whatever the notification has, we will honour and deliver to that," Bindra said.

The PMC Bank depositors have been waiting for a resolution since September 2019 when the bank’s Board was superseded by the RBI following a crisis in the bank due to weak financials and major misgovernance.

Although the majority of the depositors have got their deposits back under the withdrawal plan notified by the RBI, many depositors are still waiting for their money. These are depositors who have bigger amounts in the bank.

Several PMC Bank depositors Moneycontrol spoke to also said the RBI move is welcome for the depositors but expressed concerns on the lack of clarity on a timeframe to refund the depositors.

“We have been waiting for this uncertainty to end for long,” said another depositor in Mumbai who didn’t want to be named. “At least there is some progress, although we don’t know how long will it take for the bank to get back to normalcy again and start refunding all depositors. There needs some clarity,” said the person.

The RBI clampdown

The RBI superseded the PMC Bank board in September 2019. About 70 percent of its total loan book of Rs 8,383 crore as on March 31, 2019, had been taken by real estate firm HDIL. The bank had Rs 11,600 crore in deposits. Police arrested Joy Thomas, former managing director of PMC Bank, in October 2019. The investigators have since made a few more arrests.

The PMC Bank officials, despite non-payment by borrowers, did not classify these loans as non-performing advances and kept the information hidden from the RBI, investigators found during the probe. Probes found that the bank executives created fictitious accounts of some borrowers and fudged data to hide actual loan amounts.

Also, during investigations, it was found that the bank had been allegedly running fraudulent transactions for several years to facilitate lending to HDIL through fictitious accounts and violating single-party lending rules. The RBI imposed restrictions on deposit withdrawals and superseded its board after the fraud was detected.

 In June last year, while enhancing the withdrawal limit to Rs 1 lakh, the RBI had said that more than 84 percent of the depositors of the bank will be able to withdraw their entire account balance. This means, there are still many depositors waiting to get their deposits back. A few other depositors too spoke on the same lines.

Also, the resolution may take time since the RBI has only granted an in-principle nod to Centrum-Bharat Pe and it will take time for the new entity to merge the assets of PMC Bank and start operations as a new bank.

On Friday, in an interview with Moneycontrol,  Ashneer Grover, co-founder and chief executive officer of BharatPe, said the first part of the plan involved the Centrum-BharatPe getting converted into an SFB and later merging of the asset and liabilities of PMC Bank into the new SFB.

“I am hopeful 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,” Grover said.

As on March 31, 2020, PMC Bank had total deposits of Rs 10,727.12 crore, total advances of Rs 4,472.78 crore and a gross NPA of Rs 3,518.89 crore. The share capital of the bank is Rs 292.94 crore. The bank registered a net loss of Rs 6,835 crore during 2019-20 and has a negative net worth of Rs 5,850.61 crore.

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