RBI releases draft scheme for amalgamation of PMC Bank, Unity Small Finance Bank

The Reserve Bank (RBI) on Monday released a draft scheme for the amalgamation of Punjab and Maharashtra Cooperative (PMC) Bank and Delhi-based Unity Small Finance Bank (USFB).

Unity Small Finance Bank is a joint venture between Centrum Group and Bharatpe. It has commenced operations as a small finance bank with effect from November 1, 2021.

According to the draft scheme of amalgamation, the takeover of the assets and liabilities of PMC Bank, including deposits, by Unity will give a greater degree of protection for the depositors.

“It may be seen that USFB is being set up with capital of about Rs 1,100 crore as against a regulatory requirement of Rs 200 crore for setting up of a small finance bank under the guidelines for on-tap licensing of small finance bank in private sector dated December 5, 2019, with provision for further infusion of capital at a future date after amalgamation,” the RBI scheme said.

The RBI said it would receive suggestions and objections on the draft scheme till 5 pm on December 10, after which it will take a final view on the takeover.

The RBI draft said following the amalgamation, the depositors of PMC will get their money back over a period of three to 10 years. It said that the transferee bank (Unity) will first make the payment of up to Rs 5 lakh or less received from DICGC to eligible depositors.

For the remaining amount, the bank will pay up to Rs 50,000 above the payment already made at the end of two years, followed by an amount of up to Rs 1 lakh at the end of three years, Rs 3 lakh at the end of four years and Rs 5.5 lakh at the end five years. The RBI said the entire remaining amount will be paid after ten years.

The central bank said the interest on any of the interest-bearing deposits with the transferor (PMC) bank shall not accrue after March 31, 2021.

“No further interest will be payable on the interest bearing deposits of the transferor bank for a period of five years from the appointed date. In respect of balances in any current account or any other non-interest bearing account, no interest shall be payable to the account holders,” said the RBI scheme.

The RBI scheme also said that for institutional depositors 80 per cent of the uninsured deposits outstanding will be converted into Perpetual Non-Cumulative Preference Shares (PNCPS) with dividend of one per cent per annum payable annually.

“After ten years from the appointed date, the transferee (Unity) bank may consider additional benefits for such PNCPS holders either in the form of providing a step up in coupon rate or a call option, upon receipt of approval from the Reserve Bank. The remaining 20 per cent amount of the institutional deposits will be converted into equity warrants of transferee bank at a price of Re.1 per warrant. These equity warrants will further be converted into equity shares of the transferee bank at the time of the Initial Public Offer (IPO) when the transferee bank goes for public issue. The price for such conversion will be determined at the lower band of the IPO price,” said the RBI scheme.

According to the proposed amalgamation scheme, all the employees of PMC Bank will continue in service on the same remuneration and terms and conditions of service for a period of three years from the appointed date.

PMC Bank was put under regulatory restrictions in 2019 after the RBI found out financial irregularities in its functioning, hiding and classification of loans given to Housing Development Infrastructure Ltd (HDIL). The bank had an exposure of over Rs 6200 crore to HDIL. The RBI has superseded the board of the bank and appointed an administrator in September 2019.