National Housing Bank’s ₹150 crore refinance exposure to the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank may get preferential treatment vis-a-vis other institutional creditors having uninsured deposits with the bank.
The ₹150 crore refinance that NHB has given to PMC Bank against its individual home loans will get transferred to Unity Small Finance Bank (the transferee bank into which PMC Bank will get amalgamated).
However, NHB may not earn any interest on the refinance amount for the entire period that PMC Bank has been under RBI Directions (from the close of the bank’s business on September 23, 2019) till the appointed date (when the amalgamation of PMC Bank with Unity Small Finance Bank/SFB takes effect), according to sources.
From the appointed date, NHB’s exposure to PMC Bank (transferor Bank) is expected to be continued as refinance on the book of Unity SFB (transferee Bank). So, Unity SFB can make quarterly payments to NHB on the refinance outstanding.
Hence, NHB may have an edge over other institutional creditors of PMC Bank. The final scheme of amalgamation of PMC Bank with Unity SFB is still in the works.
Draft scheme
As per the draft scheme of amalgamation of PMC Bank with Unity SFB, on and from the appointed date, 80 per cent of the uninsured deposits outstanding (aggregate in various accounts) to the credit of each institutional depositor of the transferor bank shall be converted into Perpetual Non-Cumulative Preference Shares (PNCPS) of transferee bank with dividend of one per cent per annum payable annually.
After ten years from the appointed date, the transferee bank may consider additional benefits for such PNCPS holders either in the form of providing a step up in coupon rate or a call option, upon receipt of approval from the Reserve Bank.
Further, the remaining 20 per cent amount of the institutional deposits will be converted into equity warrants of transferee bank at a price of ₹1 per warrant.
These equity warrants will further be converted into equity shares of the transferee bank at the time of the Initial Public Offer (IPO) when the transferee bank goes for public issue.
The Maharashtra State Co-operative Banks’ Association, in its suggestion to RBI on the draft scheme of amalgamation, said that instead of converting the deposits of urban co-operative banks/UCBs (with PMC Bank) into PNCPS and equity warrants of Unity SFB, the latter should return 20 per cent of UCBsoutstanding deposits every year.
Further, Unity SFB should pay UCBs the normal rate of interest on their deposits. The Association’s member UCBs have deposits aggregating ₹826 crore parked in PMC Bank.
According to Section 16(B)(1) of the NHB Act, sums received by a borrowing institution in repayment or realisation of loans and advances financed or refinanced, either wholly or partly by NHB, shall, to the extent of the accommodation granted by it and remaining outstanding, be deemed to have been received by the borrowing institution in trust for NHB, and shall accordingly be paid by such institution to NHB.
As per Section 16(B)(2) of the NHB Act, where any accommodation has been granted by NHB to a borrowing institution, all securities held, or which may be held, by such borrowing institution on account of any transaction in respect of which such accommodation has been granted, shall be held by such institution in trust for NHB.