logos of PMC Bank, RBI, Yes Bank
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Yes Bank and PMC Bank fundamentally different; PMC Bank had really precarious financials: RBI tells Delhi HC

The averment was made by the Reserve Bank of India (RBI) in its affidavit submitted to the Court.

Aditi Singh

The Reserve Bank of India has informed the Delhi High Court that the case of Punjab & Maharashtra Co-operative Bank (PMC Bank) is “fundamentally different” from that of Yes Bank and that the former had “really precarious financials” which has not attracted any investors for reconstruction or amalgamation. (Bejon Mishra vs UOI)

The averment was made by the Reserve Bank of India (RBI) in its affidavit submitted to the Court in an application seeking a direction to allow PMC Bank depositors to withdraw up to Rs 5 lakh on account of COVID-19 emergency.

The application had alleged that while the depositors of YES Bank had been rescued, the depositors of PMC Bank were under serious distress due to the discrimination.

In response to the allegation, RBI has asserted that the two banks differed in their constitution and financial condition, which ultimately resulted in different fates for its depositors.

The conditions, as stated in the affidavit, are as follows:

- Unlike Yes Bank , where the provisions of the Banking Regulation Act allow investment in shares of one banking company by another, the provisions applicable to cooperative banks do not allow multi-state cooperative banks to acquire shares of other multi-state cooperative banks.

- In the reconstructed Yes Bank, the voting rights of shareholders were linked to the extent of their shareholding. In a cooperative bank, the principle of “one member one vote” holds irrespective of amount/percentage of share-holding, which is a huge disincentive for any prospective investor in case of a cooperative bank.

- Reconstruction is an investor led initiative and in case of PMC Bank, no bank or investor has shown any interest so far.

- In the reconstructed Yes Bank, SBI was allowed to nominate two nominee Directors on the Board of Yes Bank. However, in case of cooperative banks, such as PMC Bank, the Board of Directors comes in through the process of election and thus the outside investor has no guarantee of representation on the Board.

- Securities Contract (Regulation) Act, 1956 does not provide for listing of shares of a cooperative society and is thus a huge disincentive for any prospective investor in a cooperative bank.

- In case of PMC Bank, its net worth was in negative as on March 2019 as opposed to Yes Bank which had a positive Net worth at the time of reconstruction.

RBI has nonetheless stated that the efforts for a "satisfactory resolution" of PMC Bank were still on.

As far as the merits of the application is concerned, RBI has informed the Court that a withdrawal upto a ceiling of Rs 5 lakh, subject to earlier withdrawals, for treatment of critical life-threatening ailments such as COVID-19 had already been allowed.

The same is considered on merit, subject to certain conditions. It is also submitted that the powers to sanction all hardship related withdrawals has been delegated to the Administrator of the bank of quick resolution of applications.”, the affidavit reads.

It is also informed that based on PMC Bank's liquidity , on June 19, 2020, the withdrawal limit for normal circumstances had also been enhanced to Rs 1 lakh.

The prescribed limit would ensure that no preferential payment could be made to select depositors and more than 84% of the depositors would be able to withdraw their account balance, RBI has asserted.

The Court has now directed the Petitioner, Bejon Mishra, to supply a list of PMC depositors who are in need of money on account of medical emergency due to COVID-19 and want to withdraw the amount.

The RBI has, thereafter, been asked to point out to the Court the status of the withdrawal of the amount.

The Petitioner was represented by Advocates Shashank Deo Sudhi, Dinesh Kumar Dakoria, Bijender P Kumar.

RBI was represented by Senior Advocate Jayant Bhushan with Advocate Mohan Rikhari. The affidavit was filed through Advocate HS Parihar.

The matter would be heard next on September 15.

Read the Order:

Bejon Mishra vs UOI - Aug 14.pdf
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