PMC Bank suitors face additional capital rider

The central bank wants the suitors to go the extra mile so that depositors can get more than the Rs 5 lakh insured by the DICGC.

Suitors for Punjab and Maharashtra Co-operative Bank (PMC Bank) may have to infuse additional capital of nearly Rs 750 crore so that the payout per depositor is more than the Rs 5 lakh sum assured by the Deposit Insur­ance and Credit Guarantee Corporation (DICGC).

The Reserve Bank of India (RBI) has also slotted its board meeting on March 19 in Mumbai — a fortnight short of the current deadline to find a resolution for the beleaguered bank and the moratorium placed on it comes to an end.

Sources close to the PMC Bank transaction said that the central bank wants the suitors “to go the extra mile so that depositors can get more than the Rs 5 lakh insured by the DICGC”.

This is also to ensure that the new owners of the bank — who are to be issued a small finance bank (SFB) licence — are serious and have deep pockets.

A source said the RBI wants to ensure that the new management can steer the bank and it does not hit another air pocket.

In effect, the central bank appears to have signalled that while the minimum capital required for new SFBs is Rs 300 crore, suitors for PMC Bank may have to bring in much more.

This is also because of the fact that the impact of Covid-19 on PMC Bank’s financials has to be factored in.

The distribution of moratorium sought by micro, small and medium enterprises indicate that urban co-operative banks (UCBs) bore the brunt of incipient stress due to the pandemic while the same was true of SFBs in the case of individual loans – a fact highlighted by RBI in its Report on Trend and Progress of Banking in India (2019-20).

PMC Bank is to transit into an SFB from a UCB.

“The RBI may offer the incoming management a breather on exposure limits,” the sources said.

Other aspects which were discussed include: depositors being given the option of a lock-in period with interest being serviced; and conversion of deposits into redeemable bonds or equity.

And if need be, liquidity support from the DICGC could be examined as well.

The Jaspal Singh Bindra-led Centrum group and BharatPe combine, steel baron Sanjeev Gupta’s Liberty Group of the UK, and two business families from Mumbai and Hyderabad, have expressed interest for the bank.

In 2019-20, PMC Bank's total deposits stood at Rs 10,727.12 crore with total advances at Rs 4,472.78 crore.

The bank posted a net loss of Rs 6,835 crore with net worth at a negative Rs 5,850.61 crore.

It has been gathered that nearly Rs 4,000 crore in deposits fall under the Rs 5-lakh sum insured category.

While it is possible that a deal for PMC Bank may not be hammered out by the end of this fiscal, “the reality is nearly Rs 2 crore per day goes as expenses on account of the interest paid on deposits, and salaries and upkeep of branches,” said a source.

Photograph: Francis Mascarenhas/Reuters