The depositors of fraud-hit Punjab and Maharashtra Co-operative (PMC) Bank want their money to be paid within three years even as they have expressed the Reserve Bank of India’s draft scheme of amalgamation of the urban co-operative bank with Unity Small Finance Bank (USFB) as being insensitive to their plight.

They have suggested that the Mumbai-based co-operative bank’s corpus stored as reserves with the central bank in the form of cash reserve ratio (CRR) and statutory liquidity ratio (SLR) and other balances can be utilised to pay back their deposit amount.

According to the PMC Bank balance sheet for 2020-21 published on their website, the bank has Rs 2,770 crore in reserve ratios like CRR and SLR, secured advances of Rs 1,500 crore, gold loans of Rs 690 crore, DICGC dormant accounts of Rs 760 crore and income tax refund of Rs 500 crore, which together add up to a corpus of Rs 6,220 crore. 

In a letter to the RBI, PMC Depositors Forum has asked the central bank to desist from implementing its scheme of amalgamation where the depositors above Rs 5 lakh will be paid in a staggered ten-year period. This appears to be beneficial to only the transferee bank (USFB), the letter states, adding that “30-40% of the overall depositors are senior citizens who face grave uncertainty on receiving their own money”.

The forum has suggested immediate settlement of at least 25% of retail depositors having deposits in excess of Rs 5 lakh. The Deposit Insurance and Credit Guarantee Corporation (DICGC) will take care of depositors who have savings of up to Rs 5 lakh in the bank.

“This (DICGC) payment shall drastically reduce the demand and time liabilities (DTL) of the transferor, thereby causing a huge surplus balance in the CRR and SLR obligation…USFB should be able to immediately settle at least 25% of retail depositors (in the bracket of greater than 5 lakh) amount on account of reduced DTL consequent to settlement of DICGC. We recommend that the remaining amount be settled in maximum of three years,” the letter to the RBI states. 

 Summary of tenure for repayment to distributors: 

  • First Rs 5 lakh immediate against DICGC 

  • 25% by March 2022/Immediately (surplus generated on account of reduced DTL)

  • Remaining 25% each following year 

   . Provisions to be created by RBI for withdrawal of funds for medical emergencies being faced by depositors on case-to-case basis

The Reserve Bank should also create provisions for withdrawal of funds for medical emergencies being faced by the depositors on a case-to-case basis, the letter said.

Interest-bearing deposits

The depositors want the interest accrual to continue at the rates they were operating till date of appointment of USFB. Post that, all interest-bearing deposits of PMC Bank depositors should be at prevailing rates of what USFB is offering to their new customers. Also, they should be allowed to withdraw their interests after the appointed date of USFB as many of them are senior citizens who run their livelihood on this interest income.

 Summary of interest accruals on deposits

 . Interest accrual on interest-bearing deposits of transferor bank shall continue till date of appointment of USFB at the rate at which these deposits were operating 

 . Post the appointed date of USFB, all interest-bearing deposits of PMC depositors shall be paid interest at prevailing rates of USFB as offered to their new customers 

 . Post the appointed date of USFB, interest being paid on interest-bearing deposits of PMC depositors shall be allowed to be withdrawn as nearly 30-40% of overall PMC depositors are senior citizens who run their livelihood on this interest income.

A per the current scheme released by the RBI, 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, the RBI has proposed an interest of 2.75% per annum to retail depositors of their outstanding balance amount.

“Apart from being unfair to the depositors, this proposal is in clear violation of clause 28 (prohibitions) point ‘e’ released by RBI (Master Direction DBR. Dir. No 84/13.03.00/2015-16 on Interest rate on deposits) which states that scheduled commercial banks cannot accept interest free deposits other than in current accounts,” the letter stated.

Many depositors have been paying income tax on the notional interest that would have accrued on their deposits had the restrictions been lifted.

“RBI has not applied its mind with a fair approach,” Chander Purswani, president of the PMC Depositors Forum told Indianbankingnews.com. “The tenure of repayment should shorten and not be ten years. The irony is that many of the depositors are paying income tax on the notional interest that would have come into their accounts for the last two years,” he added. 

Payment linked to recovery of assets

The forum wants RBI to link payment milestones to PMC depositors based on recovery of assets, recovery of loans, sale of fixed assets, income tax refund and DICGC dormant accounts. The aim should be to try and reduce the tenure of payment. 

“There is no linked milestone of payment to depositors on recovery of assets, recovery of loans, sale of fixed assets, income tax refund, DICGC Dormant accounts, etc. Solution: RBI needs to further ensure that USFB will not exit and amalgamate with any other bank unless & until each and every depositor is fully paid & settled,” the letter said.

“RBI needs to further ensure that USFB will not exit/amalgamate with any other bank unless and until each and every depositor is fully paid and settled,” the letter stated.

Definition of retail depositors 

The draft scheme has not clearly defined small and medium-sized enterprises (SME) while mentioning two other categories of depositors.

The forum wants SME/private limited companies, which are closely held and similar to proprietorship firms, partnership firms and Hindu undivided families (HUF), to be included in the definition of retail investors.

The RBI’s draft scheme mentions institutional and retail categories of depositors. Retail depositors have been defined as those who hold deposits in the bank in their individual capacity, either singly or jointly with other individual(s), and include proprietorship firms, partnership firms and HUFs. Institutional depositors are in the form of corporations, companies, societies, association of persons and trusts. They are all other depositors who are not in the retail category.

Legal rights

The RBI’s proposed scheme restricts the depositors from moving the courts against the central government, the RBI, the transferee bank or transferor bank.      

“This clause attempts at withholding the legal rights of the citizens of India to appeal in the court of law and is unconstitutional,” the letter said.

The PMC Depositors Forum has urged the RBI to revisit the clause.  “If the final draft of the scheme is in the interest of the depositors and safeguards them from any further hardships none of them would want to exercise this right,” it noted. 

With the RBI placing PMC Bank under business restrictions on 23 September 2019 on account of fraud, depositors were allowed to withdraw only Rs 1 lakh. The months since then have been catastrophic for them. But when the RBI gave in-principle approval to Centrum Financial Services to set up a small finance bank (SFB) and said that it would subsequently announce an amalgamation scheme with PMC Bank, the high-value depositors hoped that they would soon get back their deposit amounts. But the RBI’s draft scheme of amalgamation has disappointed them.  

“The drafted scheme appears to be completely in favour of USFB and is not taking the interest of the depositors into consideration. There are multiple issues/concerns with this draft scheme which we would wish to highlight and would request you to consider the solutions proposed,” the PMC Depositors Forum wrote to the RBI.

The forum has urged the central bank to relook at the draft scheme and consider their solutions, which would go to “protect the innocent depositors” and “restore the faith back in RBI as well as the financial system”.

The RBI put out on 22 November the draft scheme of amalgamation of PMC Bank with USFB for comments. The stakeholders and public can give their feedback until 10 December, following which the RBI will come out with the final scheme of amalgamation. While talking to media after announcing the credit policy on 8 December, RBI Governor Shaktikanta Das said the central bank would soon come out with the final scheme of amalgamation.

The current draft proposal has chalked out a stage-wise withdrawal. The bank will, at the end of two years, pay up to Rs 50,000, and up to Rs 1 lakh at the end of three years. Then Rs 3 lakh will get paid at the end of four years, Rs 5.5 lakh at the end five years and the full amount after ten years.