PMC’s bad loans pose major challenge for new promoters
2 min read 30 Jun 2021, 11:50 PM ISTThe bank is fighting several cases at various legal fora to recover the money it lent to HDIL
PremiumThe Centrum Group promoted by Jaspal Bindra, which has got the go-ahead to take over the Punjab and Maharashtra Cooperative (PMC) Bank, is going to face an uphill task to make recoveries to repay the depositors of the bank.
The bank is fighting several legal cases against 25 companies associated with Housing Development and Infrastructure Ltd (HDIL) in various legal fora including the National Company Law Tribunal (NCLT) and the Cooperative Arbitration Court to recover money that PMC Bank’s former management lent HDIL in a fraudulent manner. The outstanding dues from these companies were ₹6,212 crore as on March 2020, which forms 73.3% of the credit portfolio of ₹8,477 crore of PMC.
However, the security available is only valued at ₹1,400 crore, which is mostly in the form of land, said a person aware of the matter.
“The legal process is complicated. It has been nine months and some of the cases have not been admitted. The administrator appointed by the Reserve Bank of India (RBI) and the advisors cannot strike any private deals to recover these loans. These loans can also not be sold to an asset reconstruction company as they are classified as fraud accounts. The bank has fully provided for it so the new promoters do not have to set aside fresh capital against it," said the person mentioned above.
The bank’s administrator had also invited bids for two French-manufactured jet planes and a yacht to recover loans. These assets belong to HDIL owners Rakesh Wadhawan and his son Sarang Wadhawan, the prime accused in the scam at the cooperative bank.
In September 2019, RBI put severe curbs on PMC Bank, including on cash withdrawals, amid a probe into accounting lapses. Cash withdrawals were initially capped at ₹1,000 per account for six months, but gradually relaxed to ₹100,000 in June last year.
Nearly two years after the curbs on the bank were first put, RBI allowed Centrum Financial Services and the payments platform BharatPe to take over PMC Bank. Centrum Financial Services is a step-down subsidiary of listed entity Centrum Capital, and provides credit to small and mid-sized companies ranging from ₹2 lakh to ₹2 crore. Resilient Innovations Pvt. Ltd, which operates BharatPe, will be an equal partner in the small finance bank. The promoters of the new bank have committed to bring in ₹1,800 crore in phases. The small finance bank will have an initial capital base of ₹500 crore.
Any recovery from HDIL will depend on the proceedings at NCLT. The troubled real estate firm which owes ₹6,840 crore to lenders is undergoing insolvency proceedings. According to a Financial Express report last year, HDIL had received six expressions of interest from suitors, including Adani Properties Private Ltd (APPL), Suraksha Asset Reconstruction and Sunteck Realty. None of the three prospective bidders have submitted any resolution plan with the deadline for doing so expiring on 7 January. Instead, APPL has filed an interlocutory application, seeking partial resolution of the company.
“Since banks have written off this account, whatever they recover will add to the income for the year in which it is realised. Recovery of the assets will depend on HDIL’s resolution plan under the Insolvency and Bankruptcy Code," said Girish Rawat, partner at Luthra & Luthra.
