Maharashtra Urban Cooperative Bank’s Federation (MUCBF) has recently written a letter to the Reserve Bank of India requesting it to provide relief to UCBs from making further provisions for Inter-Bank deposits with PMC bank and reversal of provisions made by UCBs on such deposits.
The letter which has been signed by Sayali Bhoir, CEO, MUCBF reads, “As per the RBI’s guidelines vide circular No. DCBR.BPD(PCB). 8/16.20.000/2015-16 dt. November 19, 2015, Urban Co-op Banks are permitted to deposit within the prudential inter-bank exposure limit with any single bank, not more than 5% of their total deposit liabilities as on March 31, of the previous year”.
“Besides, many Co-operative Societies are also required to make the investment in Scheduled Co Op banks in the State under the statute. Accordingly, many UCBs and Credit Societies had invested their funds with the Punjab and Maharashtra Co-operative Bank (hereinafter referred as PMC bank)”, it further reads.
According to the letter, “however imposition of all-inclusive directions on PMC bank by the RBI had prohibited PMC bank from doing banking activities. The bank’s fallout had a cascading effect on many small & middle-sized Cooperative banks. It is learned that approximately 110 UCBs are having exposure to the extent of Rs. 74844.15 lakhs with PMC bank”.
It further stated that “As per the regulatory requirement, all these banks are compelled to make provisioning @ 20% w.e.f. March 2020, 2021 and now also for the year March 2022. Looking at the investment of a large number of investors and in order to protect their interest, the Govt. of India has issued a notification on 25th January 2022 and amalgamated PMC bank with Unity Small Finance Bank (hereinafter referred as USF Bank)”.
As per the terms and conditions of the scheme USF Bank would be issuing 80% Preference shares and 20% equity warrants to institutional investors. We, therefore, opine that since PMC bank has been amalgamated with USF bank which has become operational now, there is no need for provisioning on such preference shares and equity warrants, the letter from MUCBF further reads.
In fact, the provision already made by our member banks having exposure with PMC bank qualifies for reversal which definitely would bring great relief to all the institutional investors of the PMC bank, who are presently going through a bad phase post-PMC bank’s crisis and the COVID -19 pandemic situation.
Substantiating as above, you are hereby requested to kindly issue necessary instructions for providing relief to our member bank from making further provision for inter-bank deposits with PMC bank and allowing reversal of provision made on such deposits, it concludes.