Reacting to the RBI’s “Draft Scheme of Amalgamation of the PMC Ltd. – Suggestions and Objections” urban co-op banks associated with Maharashtra Nafcub says that the implementation of such a scheme may impact UCB’s liquidity and profitability.
Maha Nafcub which is led by high profile Vidyadhar Anaskar, has submitted its comments and alternative suggestions on the draft along with the proposals. It has referred to the draft contents pointwise and has given its comment in a systematic manner to RBI.
Referring to point no. 6(i)(c)(I) of the Draft , it says “Insured portion of the deposits of all depositors including institutional depositors of the transferor bank, which would be an amount equal to the balance in their deposit accounts or Rs. 5.00 lakh, whichever is less, shall be paid as proposed in the scheme.”
On Point No. 6(i)(e) of the Draft it comments “The RBI’s draft guidelines for capital raising options in its circular dated July 14, 2021 explicitly prohibits investment in PNCPS. The draft guidelines pertaining to investment in PNCPS is reproduced below for your reference- “UCBs shall not invest in PNCPS of other banks and shall not grant advances against the security of the PNCPS issued by them or other banks”.
Referring to Point No. 6(i)(f) of the Draft, Maha Nafcub says, it seems that preference is being given to retail investors at the cost of Institutional Investors. When will the IPO of the transferee bank be launched, there is no mention of the same in the draft scheme.
We opine that there should be some deadline for the new entity to get listed, so that investors have some clarity on the receipt of their remaining amount. Most important and controversial issue is an investment by UCBs in Equity shares of another bank, which is again prohibited by the RBI, reads its letter
Further, such investments fall in Tier 1 capital of the transferee bank which is subject to continued risk for the UCBs as the newly formed entity after an amalgamation has to be profit-making and commercially viable, it says.
Suggesting the way out, Maha Nafcub says UCBs may be issued 100% of PDI to the extent of uninsured deposits instead of issuing them 80% of PNCPS and the remaining 20% in the form of Equity warrants. It also says “Investment of UCBs into PDI is to be valued at Book Value at the end of each financial year and valuation norms will not apply. (f) In terms of the RBI’s draft circular dated July 14, 2021 investments in PDI are permitted when issued as a part of the revival plan.”
Maha UCBs have faulted the draft scheme on several points and has also given an alternative. It says “In view of all above, we request the RBI not to implement the scheme in haste in order to protect the interest of all depositors and it should be made open to all with multiple options in the open market, so that many bidders including FSWM UCBs would come forward with better proposals than this draft scheme.”
Maha UCBs’ take on the subject can be accessed by clicking the link given below