‘RBI drafted plan specially to protect PMC Bank depositors’

The low possibility of recovery of dues from the fraud-hit Punjab and Maharashtra Co-operative Bank's assets combined with 60% erosion in deposits, led the Reserve Bank of India to resort to an unorthodox solution to protect 100% of depositors, a banking source told Informist.

If the RBI had opted for the normal Deposit Insurance and Credit Guarantee Scheme-led resolution, only 96% of depositors would have got their money back.

“The choice for RBI was to go with the easier path of just paying out 96% PMC Bank depositors via DICGC or protecting the remaining depositors who have placed their life savings in a bank that has seen a massive management fraud.

The second choice is tough and not legally needed, but RBI’s draft tries to protect all 100% depositors,” the source said.

The source pointed out that resorting to the deposit insurance route for resolution was the globally followed "least-cost resolution model", and not offering a staggered payout plan would have weighed down the acquiring Unity Small Finance Bank.

As per the draft amalgamation scheme issued by the RBI, PMC Bank will be merged into Unity Small Finance Bank which is promoted by Centrum Finance with Bharat Pe as a co-investor.

Under this scheme, Deposit Insurance and Credit Guarantee Scheme will ensure payment to depositors up to the insured ceiling level of 500,000 rupees, which will lead to 96% of depositors getting full money. As per the staggered timeline for repayments, almost 99% of retail depositors will get paid in full by the end of five years, and 100% of the depositors in full in 10 years.

If the RBI had opted for the normal DICGSled resolution, only 96% of depositors would have got their money back