Revadhar Tiwari, a former cab driver from Mumbai, was one of the first to open an account when Punjab and Maharashtra Cooperative (PMC Bank) launched its Andheri branch in 1993. The bank promised 12 hours of service, which was unheard of back then. His life savings are now locked away in the bank and he has to depend on his children for money.
“It is a big embarrassment to ask your children for money, no matter how helpful and willing they are,” he said, adding that his daughter is still paying EMIs for a loan she had taken from the bank but is unable to access any funds. His entire family has accounts with PMC Bank, which was shut down after it was discovered that the bank management had colluded with promoters of Housing Development and Infrastructure Ltd (HDIL), Rakesh and Sarang Wadhawan, to extend loans worth over ₹6,500 crore.
Like Tiwari, 82-year old Kumkum Chakrabarty has ₹14.94 lakh of her savings stuck in fixed deposits with another troubled entity DHFL, which has been placed under IBC-led debt resolution. A cancer patient, the octogenarian is finding it difficult to continue her treatment.
“The claims of FD holders are also being addressed as part of the resolution process of DHFL, but it will be a long process. Her previous applications for premature withdrawal were rejected,” her son Ishan Chakrabarty, who is also National Convener, DHFL Ltd FD Holders Group Pan India, said.
The sudden failure of PMC Bank owing to mismanagement and collusion; the failure of DHFL and its consequent placement with the RBI administrator under IBC (Insolvency and Bankruptcy Code); the write-down of tier-1 bonds by Yes Bank; and most recently the winding up of six debt fund schemes by Franklin Templeton Mutual Funds have left 13.41 lakh (exclusive of DHFL and Yes Bank AT1 bondholders) investors, with deposits of ₹44,500 crore (excluding DHFL) in the lurch.
A common thread running through these disparate events, which were caused by a range of issues from fraud to management failure and economic slowdown, is the plight of the small investors and depositors, who are trying various means to get their money back and wait for legal redress, which could be excruciatingly slow and expensive.
For example, a group of senior citizens who have their accounts in PMC Bank recently moved the Delhi High Court, asking that they be allowed to withdraw more money from their deposits as they face great hardships amid the Covid-19 pandemic. So far their appeal has not been agreed to.
Alarm bells
The RBI’s decision to cancel the banking licence of the 105-year old CKP Co-operative Bank has also sent alarm bells ringing through many of the Bank’s customers. While the government has increased the deposit insurance to ₹5 lakh, depositors would prefer to have their money now rather than wait for any liquidation. Though the RBI spokesperson had clarified that out of 1,32,170 depositors of the CKP Bank, about 99.2 per cent will get full payment of their deposits from the insurance payout, there are many senior citizens who have more than ₹5 lakh stuck in the bank.
Retired journalist Vijay Kothe, who is over 80 years old, is a customer of CKP Cooperative Bank with about ₹7 lakh of deposits still stuck. “There are some 1,000 odd depositors with over ₹5 lakh deposited in the bank. We are waiting to see what the liquidator has to say,” said the Mumbai resident, adding that the bank has sent a list of the depositors to the liquidator. “Many have their life savings in the bank,” he noted. A group of depositors has separately filed a case in the Bombay High Court for the revival of the bank.
The fate of many Yes Bank AT1 bondholders is no different. Investors that BusinessLine spoke with said they were mis-sold the bonds as “a super FD product” with substantially higher returns and some were even advised to break their fixed deposits for these instruments.
Yes Bank announced a net profit of ₹2,628.61 crore for the fourth quarter of 2019-20, riding on this cushion from the write-down of the bonds. The bonds were written down based on regulatory and BASEL guidelines and legal advice.
“It is great to see a Yes Bank, a private entity, making profits; the Government pocketing ₹2,000 crore plus taxes and ‘strategic’ investors making profits in a fortnight; after wreaking havoc on the retail individual AT1 bondholder by writing down their holdings,” said Saroj Mehta, a retired senior citizen who, along with her husband, had invested their retirement savings in the bonds. While Axis Trustees Services has moved the Bombay High Court and has filed a writ petition, many retail bondholders are also exploring separate legal recourse.
Fresh panic ripples
The latest in the series of these financial misadventures was the announcement by Franklin Templeton on April 23 that it would be closing six of its open ended debt funds “due to dramatic and sustained fall in liquidity in certain segments of the corporate bond market on account of the Covid-19 crisis and the resultant lockdown of the Indian economy”.
Investors in these schemes have been left in the lurch with investments of ₹25,000 crore stuck. Franklin Templeton has begun reaching out to them after market regulator SEBI asked it to focus on refunding the money. “Investors have definitely got panicky after the Franklin Templeton episode. The sad part is that many investors in mutual funds, who are served by distributors, don’t know if their fund is of equity or debt. So even after clarifying to them, they still want to redeem their funds. This is definitely a negative for the mutual fund industry,” said Nilesh Ranjan, an investment expert and a SEBI-registered mutual fund distributor.
Delhi-based chartered accountant Anil Jain is one such investor, who now plans to withdraw money from other mutual funds too.
“It is a failure of the entire system. I have also written a complaint to SEBI,” he said, adding that he is worried about how much of the principal will be lost when the money is returned.
Former Financial Services Secretary DK Mittal noted that there is need for stronger and inclusive regulatory supervision. “It is often the case that the market has already anticipated such an episode. We need a much better and inclusive regulatory supervision on a real-time basis. This is quite possible with the technology available and experts can be brought in to monitor data and information,” he said.
Vishwas Utagi, former vice-president of All India Bank Employees Association, President, PMC Depositors' Association and Convenor and Chairman, Save CKP Co-operative Kruti Samiti, noted that from 2001, several banks have been put under RBI directions and most of them will have a similar fate. Depositors will get the money only after liquidation process is complete, which could be five to 10 years. Depositors will ultimately be victims of bad laws, he said.
“Legal recourse often takes a long time. Investor awareness needs to increase and the role of investment advisors also needs to be re-assessed yet again to ensure that they sell the correct products, matching the risk profile of the customers. Similarly, the role of credit rating agencies, which is already under review, should also be examined. Also, there needs to be a better institutional mechanism for small depositors so that they do not have to wait endlessly for their money and are able to access their deposits. While deposit insurance has been hiked to ₹5 lakh, small depositors should be able to get their money within certain graded limits depending on the amount of their deposit and the funds available with the institution and when they require it,” said Dina Wadia, Partner, J Sagar Associates.
According to Rukshad Davar, Partner and Head, M&A Practice, Majmudar and Partners, in case of a resolution or liquidation, secured creditors are likely to get some pound of flesh while equity holders are right at the bottom of the chain.
“In any bank, the liability for equity holders is limited to the face value of shares. The developments at Yes Bank were tackled marvellously by the government and the RBI, equity holders were also comforted even though 75 per cent of their holding is locked in for three years. But whether the government will be able to step in for other such large-scale defaults is yet to be seen. In the case of the six funds of Franklin Templeton, investors will have to wait and see what part of their money gets returned,” he said.
Clearly, these depositors and investors have a long wait ahead of them.