BackPMC Bank admin seeks ₹3,500 cr
Administrator reaches out to potential bidders after failed attempts to draw interest from other lenders
PremiumThe administrator of Punjab and Maharashtra Cooperative (PMC) Bank has reached out to potential bidders, including NBFCs, industrialists and payments banks, to bail out the troubled lender with a minimum capital infusion of ₹3,500 crore, said two people aware of the matter, requesting anonymity.
The decision to go for an open bidding process was prompted by PMC Bank’s failed attempts to receive any interest from other lenders. Cooperative banks and scheduled commercial banks have refused to bail out PMC Bank, said the people cited above.
“The RBI has been very cautious in giving universal banking licences. PMC Bank has a full-fledged licence. So, this is a good opportunity for non-banks to take it over. One-third of the losses will also be covered in income tax rebate," said the first person.
With the amendment of the Banking Regulation Act, cooperative banks were brought under the regulatory framework of the RBI. The new investor can request for conversion of the cooperative bank into a small finance bank. The administrator can then approach the RBI to get the bank registered as a private sector bank.
“Once the approval is in place, the assets and liabilities of the bank will be transferred to the new entity. For liquidity support, DICGC (Deposit Insurance and Credit Guarantee Corp., an RBI subsidiary) can also extend support," said the second person.
“After covid, all banks are under stress. Why should they pick up a bank where they are asked to put in a huge amount of money? There is nothing substantial that the investing bank would get. In the old days, having a branch network was an attraction. Today, it is no longer the case. So, this is an attractive proposition for potential investors to enter the banking sector," he added.
However, challenges remain with regards to converting PMC into a small finance bank. “Even as PMC Bank is a full-fledged bank, converting into an SFB will reduce it to a bank with limited functions. Thereafter, it will have to wait for long to convert it into an universal bank. This will be a long process and will depend on the RBI’s terms and conditions," he said.
Last week, the administrator A.K. Dixit had invited expressions of interest from prospective equity investors for the reconstruction of the bank. The objective is to identify a suitable equity investor or group of investors willing to take over management control to revive the bank. The new investors could be financial institutions, including banks and NBFCs, micro-finance institutions controlled by residents, resident individuals, companies, societies, trusts or any other such entities.
PMC Bank had total deposits of ₹10,727.12 crore, total advances of ₹4,472.78 crore and gross non-performing assets worth ₹3,518.89 crore as on 31 March. Its share capital was ₹292.94 crore, and it registered a net loss of ₹6,835 crore in FY20. The bank has a negative net worth of ₹5,850.61 crore.
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