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The Reserve Bank of India (RBI) on Monday announced a draft scheme of amalgamation of the Punjab and Maharashtra Cooperative (PMC) Bank with the Unity Small Finance Bank Ltd (USFB), a New Delhi-based banking company.

The draft scheme envisages takeover of assets and liabilities of PMC Bank, including deposits, by the USFB in terms of the provisions of the scheme giving a greater degree of protection to the depositors.

USFB is a brand new bank which commenced operations on November 1, 2021. The bank is being set up with capital of about Rs 1,100 crore as against regulatory requirement of Rs 200 crore for setting up a small finance bank under the guidelines for on-tap licensing of small finance bank in private sector dated December 5, 2019, with provision for further infusion of capital at a future date after amalgamation. This is expected to ensure solvency and continuity of the amalgamated entity.

As per the RBI approved scheme of amalgamation, equity warrants of Rs 1,900 crore were issued by the USFB on November 1 to the promoters to bring further capital. The warrants are to be exercised anytime within a total period of eight years.

The RBI has invited suggestions and objections from members, depositors and other creditors of transferor bank (PMC) and transferee bank (USFB), on the draft scheme till December 10, 2021. It will take a final view on amalgamat ion scheme thereafter.

Under the scheme, PMC depositors will get their full amount back over a period of 10 years. In the initial phase, the bank will pay the amount insured under DICGC of up to Rs 5 lakh to the depositors. Later, at the end of two years, USFB will pay up to Rs 50,000, and up to Rs 1 lakh at the end of three years, Rs 3 lakh at the end of four years, Rs 5.5 lakh at the end of five years and the full amount will be paid after 10 years.

The apex bank has said that the interest on any of the interest bearing deposits with the bank will not accrue after March 31, 2021.

PMC Bank Limited was placed under All-Inclusive Directions under Sub-section (1) of Section 35-A read with Section 56 of the Banking Regulation Act, 1949 with effect from close of business on September 23, 2019 on account of fraud, which led to steep deterioration in the net-worth of the bank.

The directions were last extended vide a directive dated June 25, 2021 up to December 31, 2021. Given the financial condition of the PMC Bank and in the absence of proposals for capital infusion, the bank was not viable on its own.

In that event, the only course of action could have been cancellation of its licence and taking it for liquidation, wherein, the depositors would have received payment up to the insurance ceiling of Rs 5 lakh.