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MUMBAI : All retail depositors of Punjab and Maharashtra Cooperative (PMC) Bank will be fully repaid in tranches over 10 years, according to a Reserve Bank of India (RBI) scheme released on Monday.

However, deposits up to 5 lakh, which are insured by the Deposit Insurance and Credit Guarantee Corp. (DICGC), will be repaid earlier, as soon as the corporation releases the funds.

The details were spelt out in RBI’s draft scheme of amalgamation of PMC Bank with Unity Small Finance Bank Ltd, which started operations on 1 November.

Data on PMC Bank’s website shows it had deposits of 10,535.45 crore at the end of March this year.

“The draft scheme of amalgamation published today (Monday) envisages takeover of the assets and liabilities of PMC Bank, including deposits, by Unity Small Finance Bank in terms of the provisions of the scheme, giving a greater degree of protection for the depositors," RBI said.

The payout plan will work out like this: The first payment of 5 lakh to all depositors will be made as soon DICGC transfers the funds. The repayment clock starts ticking once the Centre notifies the amalgamation in the official gazette (the so-called appointed date). At the end of the second, third, fourth and fifth years, retail depositors will receive additional 50,000, 1 lakh, 3 lakh and 5.5 lakh, respectively. This means retail deposits up to 15 lakh will be repaid in full by the end of the fifth year.

For the next five years, there won’t be any repayments. At the end of the 10th year, those who still have residual amounts with the bank will be repaid in full.

PMC Bank, a multi-state cooperative lender, was on the brink of collapse when the regulator seized it on 24 September 2019, capped cash withdrawals and launched an investigation into its accounting lapses. In June, RBI cleared the decks for its takeover by Centrum and BharatPe, and the licence was issued last month. Centrum’s micro, small and medium enterprise (MSME), and microfinance businesses shall be merged into the new Unity SFB.

According to the proposal, money deposited by any employee of PMC Bank as staff security deposits, together with interest, up to the appointed date, will have to be paid or fully provided for if the employee chooses not to continue his/her services in the merged entity.

RBI also said that all deposit accounts transferred to Unity SFB under the merger will also have interest accrued till 31 March 2021. “No further interest will be payable on deposits of PMC Bank for a period of five years from the appointed date. In respect of balances in any current account or any other non-interest-bearing account, no interest shall be payable to the account holders," it said.

However, retail depositors would be paid an interest of 2.75% for funds that remain outstanding even after five years from the appointed date.

For institutional investors, RBI said 80% of the uninsured deposits outstanding would be converted into Perpetual Non-Cumulative Preference Shares (PNCPS) of Unity Small Finance Bank with a dividend of 1% payable annually. After 10 years from the appointed date, Unity SFB has the option to consider additional benefits for such PNCPS holders, either by raising the coupon rate or a call option, if approved by RBI.

The remaining 20% of institutional deposits will be converted into equity warrants of Unity SFB at a price of 1 per warrant. These equity warrants, RBI said, will further be converted into equity shares of the transferee bank at the time of the initial public offering, and the price for such conversion will be determined at the lower band of the IPO price.

RBI has sought suggestions and objections, if any, from members, depositors and other creditors of PMC Bank and Unity SFB, on the draft scheme by 10 December.

Meanwhile, a spokesperson for Unity SFB said in a statement that “96% of all depositors will get immediate access to their full deposits, 99% of the retail depositors will be paid in full by fifth year and 100% of retail depositors will be paid in full by 10th year."

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