PMC Bank: Eighteen months after the Reserve Bank of India placed Punjab And Maharashtra Cooperative Bank Ltd (PMC Bank). under restrictions, the regulator’s options to resolve the insolvent lender have dwindled.
In September 2019, the RBI dismissed the PMC Bank’s board and management and placed it under the charge of an administrator. In November 2020, the bank invited expressions of interest and four potential investors emerged. Discussions are underway with only one of these investors—a consortium of BharatPe and Centrum Group, two people familiar with the matter told BloombergQuint, on the condition of anonymity.
A restructuring plan submitted by the consortium is being discussed and, if approved, may be placed in the public domain by next month, the people said. To be sure, discussions could still go either way, they said.
Apart from the Bharat Pe-Centrum consortium, U.K.-headquartered Liberty House and two “business houses” had submitted expressions of interest, BloombergQuint had reported in December. A third person familiar with the matter said no meaningful discussions have taken place between the Liberty Group and the RBI since then. Under the RBI’s current rules, business houses are restricted entry in the banking sector.
Unlike in the case of Yes Bank Ltd. and Lakshmi Vilas Bank, PMC Bank is a multi-state cooperative bank, governed by a different set of rules. As such, a quick merger with a stronger lender hasn’t been possible.
The RBI, BharatPe and PMC Bank administrator AK Dixit didn’t respond to queries mailed on May 11. The Centrum Group and Liberty House declined to comment.
What Is Bharat Pe-Centrum Proposing
According to the first of the two people cited earlier, the reconstruction plan involves creation of a new entity where both BharatPe and Centrum Group will hold 50% stake each. The new entity will seek a small finance bank license from the RBI and will acquire the assets and liabilities of PMC Bank on a slump sale basis, the person said.
As of March 31, 2020, the latest data available, PMC Bank had a deposit base of Rs 10,727 crore and loans worth Rs 4,473 crore.
Both bidders will also be infusing equity into the small finance bank as part of the reconstruction process, which will help restart the banking business. The extent of equity infusion required couldn’t be ascertained.
BharatPe’s payments business and lending to small merchants will continue outside the small finance bank. Currently, BharatPe provides small value credit to merchants it does business with, by on-lending funds it sources from other lenders. However, according to the resolution plan, Centrum Group’s non-bank lending business under Centrum Financial Services Ltd will be merged with assets of PMC Bank. This is to avoid two independent lending businesses under the same umbrella, the person said.
As of March 2021, outstanding loans under Centrum Financial Services stood at Rs 823 crore, according to the latest financials available on Centrum Group’s website. The company saw a rapid rise in outstanding loans in the financial year ended March 2019 after it acquired the supply chain financing business of L&T Financial Services worth Rs 646 crore.
The retail depositors of PMC Bank will be able to access their deposits as they could before. However those with large deposit bases will likely face some initial restrictions, to avoid a run on the bank, the person said. At present, withdrawals of up to Rs 1 lakh per depositor are permitted, which would cover 84% of the bank’s depositors in full.
Discussions are still underway and the contours of the final plan may differ.
A small finance bank structure would be something the RBI would be much more comfortable regulating, said Amit Tandon, founder and MD, IiAS. So it makes sense that the regulator is pushing for it.
“It would also be a new beginning for the PMC Bank franchise, where it can focus on the banking business, without the burden of past problems,” Tandon said. “By introducing limits on how much money a large depositor can withdraw in one go, the size of the balance sheet can be better managed, without causing large outflows.”
However the regulator chooses to rescue PMC Bank, it will have to ensure that the large accumulated losses of the bank are provided for and the buyer has the bandwidth for it, said Hemindra Hazari, an independent banking analyst.
“Moreover, a big challenge for the rescue will be retaining depositor trust. Already they have waited for nearly two years without any clarity on the future of their deposits,” said Hazari. “The minute the gates are opened, a depositor would want to take their money out of the bank and put it somewhere safer.”
PMC Bank was placed under restrictions after serious irregularities in the bank’s functioning emerged. In a confession letter to the RBI, the bank’s MD Joy Thomas had said that the lender extended loans worth over Rs 6,500 crore to HDIL in violation of the RBI’s large exposure norms. Even though HDIL had defaulted on its outstanding loans to the bank, the cooperative lender had failed to recognise it as non-performing. The bank was also found to have created false accounts in order to manage the fraudulent lending.