Sahakar Bharti, a pan-India organization of cooperators and cooperatives, has suggested to the RBI that depositors of the Punjab and Maharashtra Co-operative Bank be paid as early as possible, but no later than five years from the appointed date. They should be paid interest at a rate at least equal to the average annual inflation rate, but no less than 6% until repayment. Alternatively, with the depositors’ consent, a portion or all of their deposits may be converted into bonds with a maximum maturity of seven years. The newly licensed Unity SFB Ltd (USFB) should have these bonds rated and listed at the earliest to provide depositors with an option to receive their funds at an early date. These bonds should bear an interest rate equal to the deposit interest rate of the State Bank of India or a benchmark government security with a maturity of 10 years.
Dr. Uday Joshi, National General Secretary, Sahakar Bharti, in a letter to RBI with regard to the draft scheme of amalgamation for the PMC Bank, observed: “In general all categories of depositors are totally disillusioned by the provisions of the proposed scheme. The depositors of PMC Bank, both retail and institutional, have been defrauded. It was expected that the resolution of the PMC Bank crisis would be to protect the interests of the hapless depositors and that the USFB would provide a fair and just solution for the depositors. However, on considering the scheme, one comes to a conclusion 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 for the PMC Bank depositors. So also, USFB is also not practically paying any interest to the depositors. Hence, in the larger public interest, DICGC should step in and grant sufficient financial support to USFB. To protect the interests of DICGC, it should nominate at least 2 directors to the board of USFB. The Reserve Bank of India and the Government of India should suitably amend the scheme of amalgamation to safeguard the interests of PMC depositors.”
Sahakar Bharti has further noted: “The depositors are facing unbelievable hardships of all kinds, and hence, they have made several representations to us. Consequently, we constituted a committee of experts, comprising of depositors, bankers, lawyers, and cooperators, to examine the suggestions vis-à-vis the draft scheme of amalgamation. The committee, headed by veteran chartered accountant Shriram Deshpande, recently submitted its recommendations, which were threadbare discussed by our central office bearers, and it was decided to submit to the RBI, a set of suggestions to lessen the hardships of the depositors.”
According to the scheme, depositors will be paid in installments over the next 10 years, with no interest for the first five years and interest at 2.75% per year after that. Sahakar Bharti has argued: “As a result, depositors having deposits of over Rs 5 lakhs will get their deposit money back after a very long period. In India, the average inflation rate (CPI-Combined) during the last 10 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 funds. Considering the severe pain and financial difficulties, the depositors should be paid not later than 5 years.”
As per the scheme, 80% of the 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 the dividend or a call option, upon receipt of approval from the RBI. The remaining 20% of institutional deposits and Tier II deposits will be converted into equity warrants of USFB at a price of Rs 1 per warrant, which will be converted into equity shares at the time of USFB’s initial public offering (IPO).
Sahakar Bharti has pointed out: “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 fixed timeline for the 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 monitory value. There should be a definite repayment plan specified. Further, 20% of the number of institutional deposits should be converted into equity shares of USFB, with a lock-in period of seven years or the IPO, whichever occurs earlier. ”