The government has approved and notified the merger of the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank with Unity Small Finance Bank.

The amalgamation has come into effect from 25 January 2022, the date of notification of the scheme.

All branches of PMC Bank shall operate as branches of Unity Small Finance Bank from this date of amalgamation, the government said in a gazette notification.

Unity SFB, set up by Centrum Financial Services along with BharatPe, is making necessary arrangements to implement the provisions of the scheme. “The scheme of amalgamation notified today (25 January) envisages takeover of the assets and liabilities of PMC Bank, including deposits, by the Unity SFB in terms of the provisions of the scheme," the RBI said.  

As part of the scheme, PMC Bank depositors will get paid their deposits above Rs 5 lakh over a staggered period of 10 years. 

As per the scheme, Unity SFB shall pay the insured deposit amount up to Rs 5 lakh received from the Deposit Insurance and Credit Guarantee Corporation (DICGC). Unity SFB will have 20 years to repay DICGC.

This is how retail depositors with outstanding deposits exceeding Rs 5 lakh will be paid:

Rs 50,000 over and above the insured amount to be paid at the end of the first year;

Another Rs 50,000 will be paid out at the end of the second year;

After three years, the bank shall pay up to an additional Rs 1 lakh;

After four years, the bank shall pay up to an additional Rs 2.5 lakh;

After five years, the bank shall pay up to an additional Rs 5.5 lakh;

The remaining amount will be paid after 10 years on demand from the depositors.

“Ninety-seven per cent of the total depositors, which is nine lakh depositors, are going to get paid upfront their entire money with interest accrued up to March 2021. That leaves only approximately 30,000 depositors who will get settled periodically over ten years,” Centrum Group Chairman Jaspal Bindra told Indianbankingnews.com in an interview.

As per the scheme, the deposits shall not accrue any interest after 31 March 2021 and for a period of five years from the appointed date. Post the five-year period, an interest of 2.75% per annum will accrue to retail depositors of their outstanding balance amount.

This is how institutional depositors will recover:

80% of the outstanding deposits of these depositors shall be converted to perpetual non-cumulative preference shares with annual dividend of 1%;

Remaining 20% shall be converted to equity warrants of the small finance bank. These equity warrants will be converted to equity shares when Unity SFB goes for an initial public offering (IPO);

At the end of the 10th year after taking over PMC Bank, Unity SFB shall use the net cash recoveries from assets pertaining to Housing Development & Infrastructure Ltd (HDIL) Group, to buyback the preference shares on a pro rata basis.

After the 21st year of acquisition, Unity SFB can buy back the outstanding principle of PCNPS, at the rate of at least 1% of the total PCNPS issued, if certain criteria are met, according to the plan.

As per the criteria, all restructured liabilities, including those incurred toward DICGC, are paid back. Unity SFB's capital adequacy ratio is at least 300 basis points higher than regulatory minimum. Net non-performing asset ratio of the bank is at least 200 basis points below the minimum risk threshold under the RBI's prompt corrective action plan at the time.

Net cash recoveries from HDIL Group's assets are at least 70% of the principal amount of advances.

The buyback of the PCNPS is capped at 10% of previous year's profit of Unity SFB.

Unity SFB will have to protect the employees of PMC Bank, as per the plan. The employees of PMC Bank shall continue with the same remuneration and other terms and conditions, for a period of three years, after January 25, 2022.

Unity SFB may discontinue the services of key managerial personnel of PMC Bank, at any time, following due procedure and providing them with compensation, as per their terms of employment.

For PMC Bank's existing members, the entire amount of the paid-up share capital and reserves and surplus of the transferor bank shall stand written off.

The RBI had in December extended the restrictions on Punjab and Maharashtra Cooperative (PMC) Bank for another three months till the end of March, 2022 as all necessary process on the draft scheme for the takeover was not complete.

In September 2019, the RBI had superseded the board of PMC Bank following detection of certain financial irregularities, hiding and misreporting of loans given to real estate developer HDIL. The regulator placed the bank under business restrictions, including putting a cap on withdrawals by its customers.

Unity SFB has been set up with capital of about Rs 1,100 crore as against regulatory requirement of Rs 200 crore for setting up of a small finance bank.