The Reserve Bank of India (RBI) announcement to give a small finance bank (SFB) licence to Centrum Financial Services to set up a small finance bank (SFB) to take over crisis-ridden Punjab and Maharashtra Co-operative Bank (PMC Bank) has come as a relief to the co-operative bank’s depositors. But they are worried about the lack of clarity on a clear time frame to get their money back.
“We are happy with the development (RBI nod to Centrum). But there is a serious concern among depositors that the RBI, PMC Bank or Centrum have not committed on a time frame to give our money back,” Manjeet Sabharwal, PMC Bank Depositors Action Team coordinator in Mumbai told Moneycontrol.
Sabharwal’s family members and close relatives have large deposits stuck in the bank, said the depositor, without disclosing the amount.
End to a long wait
For PMC Bank’s thousands of depositors who have their life savings stuck at the bank, the long wait seems to have come to an end.
Although the majority of the depositors have got their deposits back, many depositors are still waiting for their money. For them, the RBI decision is a relief. These are depositors who have bigger amounts in the bank.
“My family has been waiting for so long because my father’s entire savings of around Rs 10 lakh was in PMC Bank. He saved it for my marriage,” said the daughter of a PMC Bank depositor based in Mumbai. “We really got stuck when the bank faced a crisis. Now, there is hope,” she said.
The family plans to visit the PMC Bank branch on Monday to enquire about the RBI announcement, said the person. “We waited for so long. Now, hopefully, my father can get back the money and proceed with the marriage plans” she added.
“For sure, this is good news for PMC Bank depositors, whose main concern is to get their deposits back,” said CH Venkatachalam, the general secretary of All India Bank Employee Association (AIBEA) and convenor of United Forum of Bank Unions (UFBU), an umbrella body of bank unions.
Several PMC Bank depositors Moneycontrol spoke to also said the RBI move is welcome for 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The RBI superseded the PMC Bank board in September 2019.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. The 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 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.
“It is an experiment. We need to see if the new management can get back the trust in the bank and tackle the huge bad loans,” said a senior banker who didn’t want to be named. “Had the acquirer been an experienced bank, things would have been smoother. Centrum may face the challenges in getting things back to normal,” said the banker.
In his interview, Grover said the Centrum-BahratPe has committed to the RBI about fresh equity infusion into the bank to the tune of around $250-300 million over the next two years. “Half of it would come from Centrum and half from BharatPe. I can assure you we have enough and more capital to infuse into the bank. Equity infusion into the bank will never be a constraint come what may,” Grover said.