RBI readies 3-pronged revival plan for PMC Bank
DICGC may be roped in to fund revival; RBI loan to tide over liquidity issue; minimum capital from promoter to meet CAR
The Reserve Bank of India (RBI) is devising a three-pronged approach for the revival of the troubled Punjab and Maharashtra Cooperative (PMC) Bank. The deadline for the final offer from prospective suitors for the bank expired on Monday.
If the revival formula goes according to the plan, it will for the first time in recent years that the Deposit Insurance and Credit Guarantee Corporation (DICGC) will be roped in for the revival of a stressed bank.
According to highly placed central banking sources, DICGC will offer funds, in the form of loans to the bank, as a liquidity support.
Under two circumstances DICGC is liable to pay the claim — one when a bank is liquidated and two when a bank is reconstructed or merged with another bank.
The RBI will also open a line of credit to ensure that the bank does not face any liquidity issues to meet the obligation towards depositors once it resumes operations. This is similar to the credit line made available to YES Bank last year when it resumed operations after being put under moratorium. The RBI had opened a ~60,000 crore credit line to YES Bank — which was equal to the lender’s current account balance.
PMC Bank’s total deposits were ~10,727.12 crore, and total advances were ~4,472.78 crore, as of March 2020.
The capital adequacy ratio of the bank, which has been in the spotlight for financial irregularities, has turned negative at 258.6 per cent. It will need around ~3,000-3,500 crore to bring back the ratio to positive, and another ~1,500 crore or so to bring it to 9 per cent — the minimum regulatory requirement. The regulator wants the new promoter to bring in capital. Investors will also have the option of restructuring a part of deposit liabilities into capital/capital instruments.
After the bank invited expressions of interest from interested parties for the reconstruction of the bank, four showed interest. However, one of the investors dropped out later and further process was undertaken by the remaining three. The deadline for submitting the offer was February 1.
The new investor has also the option of converting the cooperative bank into a small finance bank. According to the latest licensing guidelines of SFBS, such an entity can convert into a universal bank after completing five years of operation, with prior approval from the RBI.
An email query to the RBI on the revival plan of PMC Bank did not elicit any response till the time of publishing the report.
PMC Bank was put under several restrictions including a cap on deposit withdrawal, after the close of business on September 23, 2019, following financial irregularities. The restrictions which were initially imposed for six months, were extended from time to time. The last restrictions were imposed in December 2020, which will be in effect till March 31, 2021.
The depositors of the PMC Bank now hope that the restrictions would not be further extended as a resolution would be reached before the end of the current financial year. Central banking sources indicate RBI Governor Shaktikanta Das is keen that revival happens sooner than later and the same has been communicated to the depositors whose life savings are still stuck.