Mumbai-based The City Co-operative Bank (CCB) has decided to take a leaf out of the scam-hit Punjab and Maharashtra Co-operative Bank’s book and scout for investment/ equity participation for its reconstruction.

CCB has floated an Expression of Interest (EoI) to identify a suitable equity investor/ group of investors willing to take over management control to revive the bank and commence regular day-to-day operations.

The bank has dangled a carrot in front of prospective investor(s), whereby upon commencement of normal day-to-day operations, it will be open for the investor(s) to convert it into a Small Finance Bank (SFB).

V. T. Gokhale, a lawyer and former investment banker, said: “This is a new development coming close on the heels of the “in process” restructuring of PMC Bank.

“It is a sequel to the amendments carried out in the Banking Regulation Act, 1949, last year, which enables a cooperative bank, subject to RBI approval, to raise equity capital by way of public issue or private placement.”

RBI rejects CCB’s merger with MSC Bank

CCB has floated the EoI in the backdrop of the Reserve Bank of India (RBI) rejecting a proposal for its merger with the Maharashtra State Co-operative (MSC) Bank.

According to CCB’s website: “the Reserve Bank of India has shown (sic) its inability to consider the request submitted by Maharashtra State Co-operative Bank Ltd., to merge our Bank with them.”

Due to its poor financial position and negative net worth, the bank was placed under All Inclusive Directions among others, by RBI with effect from April 18, 2018.

Under the Directions, there are restrictions on deposit withdrawal, grant or renewal of any loans and advances, and making any investment.

PMC revival model

CCB said the Board of Directors, in its meeting held on 11th August 2021, decided to explore the possibility of inviting investment/ equity participation from potential investors for its reconstruction, ”as envisaged and successfully done by PMC Bank”.

The potential investors can be Financial Institutions, Banks, Non-Banking Finance Companies, Micro Finance Institutions, Resident Individuals, Professionals (singly or jointly), Companies, Societies, Trusts or other such entities.

CCB, which has ten branches in the Mumbai Metropolitan Region, had total deposits of ₹411.16 crore, advances of ₹204.90 crore and gross non-performing assets (NPA) of ₹194.59 crore as on 31st March, 2021, per the EOI.

The share capital of the bank is ₹10.41 crore. However, the bank registered a net loss of ₹15.08 crore during 2020-21 and has a negative net worth of ₹172.93 crore, the EoI said.

The bank said the investor(s) should ideally bring in the capital required for enabling the bank to achieve the minimum required capital to risk-weighted assets ratio (CRAR) of 9 per cent.

However, the investors may explore the option of restructuring a part of deposit liabilities into capital/ capital instruments, the EoI said.

The bank may also approach DICGC to support payment up to ₹5 lakh (insured deposits) to depositors.

After due evaluation, the viable proposal(s) will be forwarded to RBI for consideration for preparing a draft scheme of reconstruction and other consequential action under Banking Regulation Act, 1949.

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