Sahar Bharati requests finance minister’s intervention for a better deal
Sahakar Bharati – a forum of cooperative societies founded by Reserve Bank of India (RBI) board member Satish Marathe – has stepped in to offer a better deal to the depositors of the troubled Punjab and Maharashtra Cooperative (PMC) Bank.
The draft scheme of amalgamation of PMC Bank with Unity Small Finance Bank, which was announced by Reserve Bank of India, proposed a sharp haircut for depositors. The draft scheme which was announced in November last year proposed that depositors of more than Rs 5 lakh have to wait for upto 10 years to get all their money back. No interest would be paid to those depositors for the first five years, after which 2.75% will be paid, the draft scheme said.
In a letter to Finance Minister Nirmala Sitharaman on January 4, Sahakar Bharati said that the depositors were disillusioned with the draft scheme and said that the value of the deposits, if they are blocked for 10 years, will be nil, given the recent trends in inflation which is on the rise and is expected to remain in the higher band in the long term.
“Considering the severe pain and financial difficulties, the depositors (of PMC Bank) have faced during the last two years, it is necessary that their monies should be repaid, as early as possible, but not later than 5 years, from the appointed date,” said the letter, signed by founder member Marathe, and also by the national general secretary and national president of Sahakar Bharati.
The letter said depositors need to be paid 6 per cent interest rate or at least the rate equal to the average inflation rate of the past three years during the five-year period. They have also requested the government to enhance the liquidity support by Deposit Insurance and Credit Guarantee Corporation (DICGC) as the proposed liquidity support from DICGC is ‘meagre and needs to be substantially augmented.’ It has also suggested DICGC to nominate two board of directors in Unity SFB to protect its interest.
Following the letter, the Sitharaman met some members of Sahakar Bharti, including Marathe, virtually, to discuss PMC Bank’s resolution issue.
In a second letter to the finance minister on January 9, Sahakar Bharati, while thanking her for the interaction, reiterated the need for an ‘out of box’ solution for PMC Bank. Business Standard reviewed both the letters.
“The Scheme is both one sided and totally unfair to the depositors who would suffer huge haircut under the disguise of lock-in periods with no or ridiculously low interest rates. Our suggestions may be examined to mitigate hardships of the depositors, who have suffered for no fault of theirs,” the January 9 letter said while requesting the finance minister’s ‘benign intervention’ to ensure PMC depositors get a better deal.
After the draft scheme of amalgamation was proposed by RBI it faced stiff opposition from PMC depositors which resulted in a delay in the resolution process. In the previous two instances where such schemes of amalgamation were announced, namely Yes Bank and Lakshmi Vilas Bank, the final scheme was released within days after feedback on the draft scheme was received.
The last date for submission of feedback of the PMC draft scheme was December 10. More than a month has passed, and the final resolution has not yet been approved.
Sources said RBI tweaked the draft resolution and submitted it to the finance ministry for its approval sometime in late December. The final resolution is only expected after the Union Budget, which is scheduled for February 1. Sources said the final plan will be announced by the middle of February. In December, RBI further extended the restriction on PMC Bank by another three months, till March 31. PMC Bank has been under the restrictions since the close of business on September 23, 2019.
- Sahakar Bharati says draft scheme is unfair for depositors
- Suggests all money to be refunded within 5 years
- Calls for 6% interest rate on deposits
- More liquidity from DICGC
- Two DICGC members on Unity SFB board
- Final scheme expected after Union budget