RBI floated an open tender for restructuring and reconstructing the PMC Bank, along with licence for a small finance bank (SFB) to the successful bidder. This tender was open to all non-banks. We made a voluntary bid, along with reportedly two other bidders. In our judgement, we evaluated this to be worth an attempt as a plausible route to a banking licence.
Post the detection of the fraud at PMC Bank, it was common news in the market that the only options for the seriously insolvent bank were to liquidate or merge with an existing co-operative, private or public sector bank. However, later it became known that a new route was being adopted through a tender process. We are not best placed to judge the merits of that decision. But we are pleased to have met the RBI’s high standards of fit and proper for a banking licence and to be given the opportunity to reconstruct PMC Bank. We are delighted to welcome their employees and branch network into our fold in Unity SFB.
It is just not branches and employees. You will also get a free float from PMC Bank.
The upfront mandatory payout of Rs 5 lakh per depositor amounts to about Rs 4,000 crore, which will more than exhaust the free float from PMC Bank right from the start.
Isn’t the scheme being unfair to the high-value depositors?
The scheme has to be looked at in view of the PMC Bank problem and alternate solutions. There was a fraud in PMC Bank, which wiped out over Rs 7,000 crore of depositors’ money. Besides, the bank has accumulated hundreds of crores of doubtful debts from other retail and wholesale clients. Under these circumstances, liquidation seemed the most obvious outcome whereby high-value depositors would have received only Rs 5 lakh. The RBI’s draft scheme already promises much more over time.
Depositors say there is over Rs 2,000 crore just in the bank’s reserve ratio. And if you include the dormant account and the income tax refunds, the total cash pool available is Rs 6,000 crore. Are their claims right?
The financial due diligence we conducted through E&Y in January 2021 before submitting our bid would suggest these claims are highly exaggerated. The RBI administrators have been in charge of the institution over the past two years and are therefore in a good position to ascertain the cash position. I don’t believe that the RBI and/or the government, who have the final say, will wish to mislead the aggrieved depositors.
It is not about misleading but the long wait for their money. And for senior citizens, the ten-year lock-in window means they may never see their deposits coming back to them in their lifetime.
We appreciate the concern particularly for the senior citizens. Realistically, a cash deficit in excess of Rs 7,000 crore is impossible to fill through business profits in the short term. Once the PMC Bank is amalgamated with our SFB, it will be Unity’s endeavour to facilitate liquidity for senior citizens.
What are the assets that will move from PMC Bank to Unity SFB?
The remaining good book at PMC Bank is relatively small and comprises largely wholesale and home loans. Unity SFB is currently not planning to conduct business with either of these two customer segments.
But PMC Bank has 137 branches that can be operationalised by Unity SFB?
Presently, only 110 branches of PMC Bank are operational. Yes, we intend to operationalise all the 137 branches under the Unity SFB brand.
It is not like starting from scratch for you. You will inherit the NPAs of PMC Bank, along with the assets. How will you manage to recoup the losses?
Once we sight all the collateral title documents, we will seek best quality legal and collateral management expertise to determine value and devise an optimal recovery strategy. Thereafter, it will be all about executing to maximise collections to fund depositors’ resolution.
How long will the amalgamation process take after the final scheme is out?
The amalgamation appointed date should be within a week or two post the announcement of the final scheme.
Under the RBI’s proposed scheme of amalgamation it is mentioned that one cannot approach the court of law. Isn’t that being too harsh on the depositors?
Parliamentarians have approved special powers for the RBI and government of India to design amalgamation schemes to rescue weak banks. These powers have recently been exercised twice in the case of Yes Bank and LVB. But in both these cases the depositors got back all their money. This is the only case where the depositors will have to wait for so long. Each case is different. In LVB all shareholders got their holding reduced to nil. In Yes Bank all AT1 bond holders including retail got reduced to nil. In PMC all retail depositors will get their full dues as of March 2021, but with a lag. We have to trust the judgement of the RBI in curating the scheme appropriate in the best interests of all the stakeholders under the circumstances of each situation. The RBI has equally taken decisions to liquidate several co-operative banks in recent times.
Since you are going to be the acquirer, I am sure the RBI would have had detailed discussions about how you are going to manage PMC Bank?
The major part of PMC Bank reconstruction is a) Depositors’ resolution and b) Employee service continuation. Both of these are expected to be addressed in the scheme. The RBI will tell us once the scheme is approved by the government of India. Even the RBI on its own cannot approve the scheme; it has to go through the cabinet committee.
Do you feel the RBI has been unfair to you for not letting you have any say in the matter?
We are not surprised as even in the case of LVB and Yes Bank it was the RBI that designed the scheme. It is encouraging to see that both those institutions are making positive progress post the scheme implementation.
But in your case, all the bad loans of PMC Bank are going to be written off and you also get to dip into the reserves?
Yes, we have to write off the bad debt since there is limited recovery prospect. In PMC Bank’s case, it is not a deterioration of the book or a business model that has gone wrong; it is a fraud.
![]()
Realistically, a cash deficit in excess of Rs 7,000 crore is impossible to fill through business profits in the short term. Once the PMC Bank is amalgamated with our SFB, it will be Unity’s endeavour to facilitate liquidity for senior citizens
You get to write off the debt and you get the cash reserves of the bank. What stops you from sharing the money with the depositors?
As mentioned before, Unity SFB will pay about Rs 4,000 crore upfront to the depositors, which is more than the cash or near-cash available with PMC Bank. That is why the RBI has suggested in its draft scheme cash assistance from DICGC to meet the upfront payment.
But isn’t the Deposit Insurance and Credit Guarantee Corporation (DICGC) liable to pay that money to the depositors?
In the event of liquidation of a bank with insured deposits, the DICGC is liable to pay the mandatory insured amount and in return claim rights over all the assets and liabilities of the liquidated institution. The depositors then would get only Rs 5 lakh each. But this situation is different whereby under a cabinet committee-approved reconstruction scheme, the Unity SFB will not only pay the mandatory Rs 5 lakh to each depositor in return for rights over PMC Bank’s assets and liabilities but also pay significantly to all depositors over time and keep all the existing workforce employed as before.
Several depositors have put crores of rupees in the bank. In lieu of the interest that would come from these deposits, there is a TDS and depositors are also paying income tax on the interest that is likely to accrue on the deposits. Isn’t there a way out?
At a human level, it is very sad. The previous bank management has cheated the depositors while indulging in a fraud. This is probably the largest banking fraud in India. Clearly, it has come with consequences which are very severe.
The readily realisable assets of PMC Bank as they stand today are not even worth Rs 4,000 crore, which Unity SFB will be paying at the start to the depositors. How much will be the recovery is unknown to us, but it for sure is not going to be anywhere near Rs 10,400 crore which is due to depositors as on March 2021.
There is no special deal here. The RBI has over the last two years studied the possibilities of the best way to escape the messy situation created by the PMC Bank.
The depositors are out on the streets. They are protesting in front of RBI offices, the RBI Governor’s residence and even in front of Unity SFB. How are you going to deal with this anger? Won’t you have detailed discussions with them?
We will, once the banks are amalgamated post the finalisation of the scheme.
Weighing the circumstances, I think it is a better outcome for all the stakeholders. Earlier, it looked like the depositors would get only Rs 5 lakh and forego the remaining deposit amount. Now even though there is hugely insufficient money in the bank, the retail depositors will be getting paid in full the principal portion of their deposits, though over a period of time. Plus, all the employees get to retain their jobs.
We feel very strongly for the depositors; it is not at all good to be in their position. But the depositors seem to be incorrectly insinuating the RBI as the culprit. The actual villain is the earlier top management of PMC Bank and the defaulting HDIL promoter group. The easiest solution for the RBI would have been to liquidate the bank; they have liquidated many co-operative banks earlier. But this time they have tried to do something different to the benefit of all the stakeholders.
![]()
The readily realisable assets of PMC Bank as they stand today are not even worth Rs 4,000 crore, which Unity SFB will be paying at the start to the depositors. How much will be the recovery is unknown to us, but it for sure is not going to be anywhere nea
But for many depositors it is about life and death situation...
Practically, there exist only two options. One is to liquidate the bank and give everyone up to Rs 5 lakh as insurance cover on their deposits. The other is what the RBI is trying to do – rescue PMC Bank.
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 a period of ten years. The positive thing is that they will get their full principal deposit money back.
What made you look for a banking licence?
The opportunity for the banking sector is phenomenal. There is no financial market of India’s size in the world which is so poorly served by banks. Credit is completely underserved in many big segments. The MSME (micro, small and medium enterprises) and rural segments are bright examples of this.
But aren’t we also seeing the collapse of some non-banking financial companies (NBFCs) and banks in the last couple of years?
Yes, financial institutions fail mostly on count of liquidity mismanagement and fraud. We have seen examples of both recently in our domestic markets. We have to learn and be disciplined to avoid the pitfalls.
Credit growth is sluggish and there is too much of competition among the banks to get a slice of the cake. Even deposit growth is a challenge…
There are in all 34 banks in India, including the foreign banks, government-owned banks and private sector banks. I am leaving out the regional rural banks and the co-operative banks. If you look at the same category of banks in the US, which is one-third of our population, the number is 4,000. On the demand side, we are underserved. And on the supply side the number of banks available is far short. So, it is actually a phenomenal time to be in banking.
With public sector banks consolidating, the number of banks is further shrinking in India. Which means the opportunity is bigger?
I don’t think competition is the problem in India. I don’t think any bank should be worried about competition; it is all about getting individual acts right. The market is there and there is a lot of opportunity. The first to bank customer itself is a massive number to tap.
Each bank can carve out its niche and then gradually expand. We will start with what we inherit from the amalgamation and then plan what else.
Isn’t reaching out to credit worthy borrowers a big challenge?
You see how the private sector banks and fintechs are growing. It shows that bank credit is really underpenetrated, and this throws up opportunities for us. Demand even from creditworthy borrowers far exceeds supply. Unity SFB at start is only to indulge in retail banking and not wholesale.
How long do you think Unity will be in the small finance bank segment?
We have to run this for the next five years at the minimum. We will see how it goes from thereon. Our task is to set up Unity as a strong small finance bank. We intend to make all transactions available on the App. We will, of course, welcome customers to our branches if and when they prefer to transact physically.
The business of small finance banks seems not to be so robust at this stage. Will a digital SME kind of bank help you circumvent many of the problems your peers may be facing?
Digital will definitely help in expanding our reach, better credit decision making and optimising our costs. Good data analytics will help us in credit decisions and collections as well. We already have a data analytics team in place.
We also believe that Unity SFB needs to have a diverse portfolio to escape some of the challenges a few SFBs are currently facing due to segment/product concentration.
What will your loan book look like after five years? Will you be a pure SME bank or will it have retail credit like car and home loans?
We will be a small-ticket lending bank. We will have retail credit products but the ticket size will be small. The sweet spot will be an average ticket size anywhere between Rs 20,000 to Rs 2 crore. That will be the bulk of our business, with some considered select exceptions. That is where we want to be. We are also aware that it is a very competitive business and we will have to price ourselves in line with the market.
What attracted you back to India, especially at a time when things were not so rosy in the financial services sector?
Clearly, there was an entrepreneurial bug which I was evaluating for a while. You never know when is the right time. I also wanted to be back in India for family reasons.
You had also met people from ICICI Bank and HDFC Ltd. What happened to those interactions?
Yes, I had met a couple of other people as well. They were just early conversations to understand what options were there for entrepreneurs in the Indian financial sector. But once I got engaged with Centrum, I was motivated by its potential to pursue to the full.
Was it that you felt Centrum would offer you more freedom over the others and you could own it along with the promoters?
It was not just about that. I was convinced that Centrum was personally the right fit. It was a pure fee service business with large runway to add lending verticals. Centrum enjoyed vintage and a well-regarded track record, but little baggage. It was at a good size to take it to new and different directions. I also had abundant comfort with the promoter founder. It was a combination of factors.
