Scam-ridden PMC Bank seeks potential investors for bailout

Crisis-ridden Punjab and Maharashtra Cooperative Bank (PMC) has invited interest from potential bidders for the reconstruction of the bank.

The bank has invited expression of interest for investment and equity participation in the bank for its reconstruction, it said in an advertisement on its website on November 3.

“Objective of the process of an invitation of EoI is to identify a suitable equity investor/ group of investors willing to take over management control so as to revive the bank and commence regular day-to-day operations,” the PMC Bank said inviting potential investors.

The Reserve Bank of India (RBI) superseded PMC Bank board in September 2019.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 the PMC Bank, in October. The investigators have since made a few more arrests.

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 The RBI imposed restrictions on deposit withdrawals and superseded its board after the fraud was detected.

Subsequent to the commencement of the normal day-to-day operations, it will be open for the investors to convert the bank into a Small Finance Bank by making an application to Reserve Bank of India, the bank said inviting interest.

This, however, will be subject to compliance of the RBI guidelines on Voluntary Transition of Primary (Urban) Co-operative Banks (UCBs) into Small Finance Banks (SFBs) dated September 27, 2018, PMC Bank said. Eligible investors could be Financial Institutions, including banks and NBFCs and individuals or Group of Individuals/ companies, societies, trusts or any other such entities having adequate networth, the bank said.

According to the details of the proposal, the investor should bring in the capital required for enabling the bank to achieve the minimum required capital to risk weighted assets ratio (CRAR) of 9 per cent.

The investors can later explore the option of restructuring a part of deposit liabilities into capital/capital instruments, the bank said, adding, it may also approach DICGC for its support for payment upto Rs.5 lakh to depositors.

After due evaluation, the  viable proposal(s) will be forwarded to Reserve Bank for its consideration for preparing a draft scheme of reconstruction and other consequential action under Section 45 of Banking Regulation Act, 1945, the proposal said.

The shortlisted investors needs to conduct due diligence on PMC Bank and subsequently submit their binding offers for further consideration by PMC Bank on or before 15 December, 2020, the bank said.

According to the bank, it had total deposits of Rs 10727.12 crore, total advances of Rs. 4472.78 crore and gross NPA of Rs 3518.89 crore as on 31 March, 2020. The share capital of the bank is Rs. 292.94 crore. The bank registered a net loss of Rs.6835 crore during 2019-20 and has a negative net worth of Rs 5850.61 crore

In a letter to the customers of the bank the RBI-appointed administrator, A K Dixit, said the management is working on finding a way out to resolve the Bank in the best interests of all stakeholders, particularly the depositors.

“Various models/ options are being considered, and discussions are continuing with different entities in this regard. Inspite of the pandemic-induced hurdles, the matter is engaging our close attention under the guidance of RBI,” Dixit said.

According to the administrator, the bank has already initiated actions for recovery of bad debts, including accounts of HDIL group.

“We have intensified our recovery efforts through close follow up, settlements and legal action as appropriate. We have taken aggressive steps to control costs and cut expenses. Branch network is being rationalised, premises are being surrendered and rents are being re-negotiated down,” said Dixit.

“While maintaining essential IT systems, we have rationalised telecom lines and have cut down the expenses on outsourcing. Staff expenses have also been substantially reduced. In short, a hard look is being taken at every expense,” Dixit said.

At present, the bank is making payment to all depositors up to Rs one lakh, besides hardship payments upto Rs.5 lakh for critical and life threatening ailments viz. cancer, COVID, and ailments related to heart, kidney etc., while managing the resources of the Bank for optimal returns, the administrator said.