Finding faults with several provisions of the Draft Scheme of Amalgamation for the PMC Bank, as put forward by the RBI, Sahakar Bharati felt that the idea of paying back depositors’ money in a time period of 10 years and that too without interest is not just.
Sahakar Bharati said that it constituted a Committee headed by CA, Shriram Deshpande which has recently submitted its Recommendations. These were threadbare discussed by the Central Office Bearers of Sahakar Bharati and it was decided to submit to the RBI, the following suggestions to lessen the hardships of the Depositors –
As per the Draft Scheme the Depositors of PMC Bank will be paid during the next 10 years in installments and that too without interest for the first five years and with interest at 2.75% pa thereafter. As a result, Depositors having Deposits over Rs.5 lakhs will get their Deposit money back after a very long period. In India the average inflation rate (CPI-Combine) during the last ten years has been 6.26% (Source- Economic Survey 2021 Volume II page 162). It means the value of One rupee has depreciated by 6.26% per year over the last 10 years. If we consider that the same rate of inflation continues, for the next ten years, the value of one rupee will be NIL by the time the Depositors get back their monies.
Considering the severe pain and financial difficulties, the Depositors should be paid as early as possible, but not later than 5 years from the appointed date. Further, the Depositors should be paid interest at least equal to the average inflation rate per annum, but minimum 6% till repayment.
Alternatively, with the consent of the Depositors, a part or full of their Deposits be converted into Bonds with maturity of maximum 7 years. The newly licensed Unity SFB Ltd (USFB) should have these Bonds Rated and Listed at the earliest so that Depositors will get an option to receive their monies at an early date.
These Bonds should carry interest rate equal to Deposit interest rate of State Bank of India or 10 years benchmark Government Security. C. Institutional Deposits – As per the Draft Scheme, 80% of uninsured Deposits of the Institutional Deposits are proposed to be converted into 1% Perpetual Non-Cumulative Preference Shares (PNCPS) with an option to USFB to increase dividend or a call option, upon receipt of approval from the RBI.
The remaining 20% of Institutional Deposits together with Tier II Deposits will be converted into Equity Warrants of USFB at a price of Re 1 per Warrant which will be converted into Equity Shares at the time of Initial Public Offer (IPO) to be made by USFB when it goes for Public issue. Conversion of Institutional Deposits into 1% PNCPS with uncertainty over increased Rate of Return and repayment of Principal will literally wipe off, due to inflation, the entire value of these PNCPS. Unfortunately, there is also no time line fixed for conversion of Equity Warrants into shares of USFB.
In view of the above, the Dividend rate of PNCPS should be at least equal to the rate of average inflation during the last 10 years to safeguard its monetary value. There should be a definite repayment plan specified. Further, the 20% amount of Institutional Deposits should be converted into Equity Shares of USFB, may be with lock-in-period of seven years or IPO whichever occurs earlier.
Conclusion – The Depositors of PMC Bank, both Retail and Institutional have been defrauded and it was expected that the Resolution of PMC Bank crisis would be to protect the interests of the hapless Depositors. It was expected that the USFB would provide a fair and just solution to the Depositors.
However, on considering the Draft Scheme one concludes that the entire loss suffered by the PMC Bank is being thrust on the shoulders of the Depositors. In real terms, USFB is not taking any responsibility of the PMC Bank Depositors. So also, USFB is also not practically paying any interest to the Depositors.
Hence, in larger Public interest DICGC should step in and grant sufficient financial support to USFB. In this regard, to protect the interests of DICGC, it should nominate at least 2 Directors on the Board of USFB. Reserve Bank of India and Government of India should suitably amend the Draft Scheme of Amalgamation to safeguard the interests of PMC Depositors.
The letter is signed by Dr Uday Joshi, National General Secretary of Sahakar Bharati. It bears recall that Maharashtra UCBs led by Vidyadhar Anaskar had also submitted its list of suggestions to RBI earlier.