Fraud-hit Punjab and Maharashtra Cooperative (PMC) Bank on Tuesday invited expression of interest (EoI) from potential investors for investment or equity participation in the bank for its reconstruction.
“Objective of the process of 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,” PMC Bank said in an advertisement.
Subsequent to 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 the RBI, the lender said.
The conversion 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, it said.
In September, 2019, the Reserve Bank of India had superseded the board of the multi-state urban cooperative bank and placed it under various regulatory restrictions after detection of certain financial irregularities, hiding and misreporting of loans given to real estate developer HDIL.
It's exposure to HDIL was over Rs 6,500 crore or 73 per cent of its total loan book size of Rs 8,880 crore as of September 19, 2019.
Initially, the RBI had allowed depositors to withdraw Rs 1,000 which was later raised to Rs 1 lakh per account to mitigate their difficulties.
In June this year, the RBI had extended the regulatory restrictions on the cooperative bank by another six months till December 22, 2020.
As of March 31, 2020, the PMC Bank's total deposits stood at Rs 10,727.12 crore and total advances at Rs 4,472.78 crore. Gross NPA of the bank stood at Rs 3,518.89 crore as of end-March.
The share capital of the bank is Rs 292.94 crore.
During 2019-20, it registered a net loss of Rs 6,835 crore and has a negative net worth of Rs 5,850.61 crore.
As per the details of the proposal, the 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 investor(s) should ideally 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,” it said.
However, the investors may explore the option of restructuring a part of deposit liabilities into capital/capital instruments, the bank said.
The last day for submission of EoI is December 15, 2020.
"After due evaluation, the viable proposal(s) will be forwarded to RBI for its consideration for preparing a draft scheme of reconstruction and other consequential action under Section 45 of Banking Regulation Act, 1945,” as per the details of the proposal.
The bank may also approach DICGC for its support for payment up to Rs 5 lakh (insured deposits) to depositors under the provisions of the DICGC Act, 1961, it said.
Separately, the newly-appointed administrator of PMC Bank, A K Dixit, in a letter to the bank's customers and stakeholders, said all possible options are being explored to find a meaningful resolution of the problems at the lender.
"We are 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," Dixit said.
He was appointed as the bank's administrator on September 23, 2020.
Dixit said 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,” he said.
The lender has 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.
“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," he added.
Photograph: Francis Mascarenhas/Reuters