Analysis | An unfair wait for some PMC Bank depositors?

RBI had imposed restrictions on the withdrawal of deposits from PMC Bank.

The draft amalgamation scheme for Punjab and Maharashtra Cooperative Bank (PMC) and Centrum-BharatPe promoted Unity Small Finance give some good news and bad news to the PMC Bank’s aggrieved high-value depositors. The good news is that all depositors will get their money back. There is, finally, an end to the long uncertainty. And the bad news is that depositors will get their full amount only over a period of three to 10 years. That is too much of a wait, particularly, for some of the elderly depositors of the bank.

Here is how the draft scheme spells out the repayment plan for the PMC Bank depositors. As per the draft scheme details, the acquiring bank (Unity SFB) will pay the amount guaranteed by DICGC (Deposit Insurance and Credit Guarantee Corporation) i.e. up to Rs 5 lakh to 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, at the end of three years an amount of up to Rs one lakh will be paid, at the end of four years up to Rs 3 lakh and at the end of five years, Rs 5.5 lakh and the entire remaining amount will be paid after 10 years, on demand.

The interest on any of the interest bearing deposits with the transferor bank (PMC Bank) shall not accrue after March 31, 2021, the RBI said. No further interest will be payable on the interest bearing deposits of 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, according to the scheme.

For many PMC Bank depositors who have their money stuck in the bank for long, this long wait won’t be certainly a good news. Some depositors who have money stuck in the bank much above the Rs 5 lakh DICGC limit are unhappy with this structure. “My dad is a depositor in the bank. He is sick and another 10 years will be a long wait for people like him,” said Vivek Dixit, a senior independent lawyer whose family has deposits in PMC Bank.

"At lest 40 percent of the PMC Bank depositors awaiting their money are elderly citizens, They don't even know whether they will live even for next five years. What's the point of this wait?," said Sandeep Bhalla, another depositor.

For institutional depositors, on and from the appointed date, 80 percent of the uninsured deposits outstanding is proposed to 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 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 scheme proposes.

So should PMC Bank depositors be happy about the provisions of the draft scheme? In a way, yes. As said above, the draft scheme puts an end to the long uncertainty on whether the PMC depositors will get their money back. Their money will be returned but with a long delay. But surely , some of them have a long wait ahead. After having to wait nearly two years for resolution, if a depositor needs to wait for another 10 years to get their full amount, that is an unfair deal," said Bhalla.