The Revival of Punjab-Maharashtra Co-operative Bank

PMC bank became the talk of the town when it issued an EoI (expression of interest) in order to identify suitable equity investors/group of investors to take over management control and revival of its current state. The EoI was issued in November 2020 and has to be submitted to the RBI by December 15.

The Scam

PMC has been under regulatory restrictions since RBI found irregularities in its financial operations and hiding and facilitating loans to Housing Development Infrastructure Limited (HDIL). Rs. 6200 crore have been exposed to HDIL in this matter. In 2019, Economic Offences Wing (Eow) of the Mumbai police, arrested PMC’s former managing director Joy Thomas in connection with the fraud. The promoters of HDIL, Rakesh Wadhawan and Sarang Wadhawan, too have been arrested and are currently in jail, facing money laundering charges.

PMC’s total deposits sum up close to Rs 10,800 crore, advances up to Rs 4500 crore, and gross non performing assets of Rs 3500 crore as on 31st March 2020. The bank has a share capital of Rs 293 crore but registered a loss of Rs 6800 crore during the year 2019-20. It has a negative net worth of Rs 5800 crore.

The Revival

In a letter to the bank’s customers and stakeholders, RBI appointed administrator  A K Dixit said that the bank has already rolled out various steps in order to recover from its current state. Recovery of bad debts, cutting costs and expenses, rationalizing several branches are a few of the steps taken on the revival front. Essential IT systems are being retained, staff expenses are being kept under a strict check and various means are being found to console the stakeholders and especially the depositors.

The administration stated that the bank is currently rolling out Rs 1 Lakh to all its depositors. Other than that, hardship payments of Rs 5 lakh are being made to those with Critical or life-threatening ailments like Cancer, Covid-19, ailments related to heart, kidney etc.

A particular development has been observed during the revival process that 20 percent of the bank’s nine lakh customers haven't withdrawn the entire sum of Rs 1 lakh. It looks like a silver lining in the days of doom as there are a few customers that believe that the bank is going to make it through this mess.

Required Investment

Potential investors have proposed to convert PMC bank into a small financing bank but first, it will have to meet the regulations and an approval by the RBI. The administration is reviewing several options of investments for bringing the bank back to life.

Currently, with a negative net worth, the bank will need Rs 5800 crore to bring back the net worth to zero and another 1000 crore to maintain the adequacy ratio of 9 percent to restart the business.

Further proceedings

Initially, four entities had shown interest in investing but only three entities have submitted their interest in the revival of PMC so far. Mumbai based Surindar Mohan Arora (Ideal Group) is understood to have submitted the LoI (letter of intent). Identities of other entities have not yet been ascertained. The last date for submitting the LoI was December 15 2020. An extension has been granted and the investors have been given February 1, 2021 as the final date to submit their final offer. The RBI administrator A K Dixit will be studying the plus and minuses of all the Letters of intent. After their recommendations, RBI will take a call on which entity is suitable for taking over the management control and commencing day to day operations of the bank.