PMC’s bad debts pose a major challenge for new developers
The Centrum group promoted by Jaspal Bindra, which has been given the green light to buy out the Punjab and Maharashtra Cooperative (PMC) Bank, will face a daunting task of making collections to reimburse the bank’s depositors.
The bank is pursuing several legal actions against 25 companies associated with Housing Development and Infrastructure Ltd (HDIL) in various legal proceedings, including the National Company Law Tribunal (NCLT) and the Cooperative Arbitration Court in order to recover the money that the former management of PMC Bank loaned to HDIL in a fraudulent manner. The unpaid contributions of these companies were ₹6,212 crore in March 2020, which represents 73.3% of the credit portfolio of ₹8,477 crores of PMC.
However, the available security is only assessed ₹1,400 crore, which is mostly in the form of earth, said a person familiar with the issue.
“The legal process is complicated. It has been nine months and some of the cases have not been admitted. The administrator appointed by the Reserve Bank of India (RBI) and the advisers cannot enter into any private agreement to collect these loans. These loans also cannot be sold to an asset rebuilding company as they are classified as fraudulent accounts. The bank has fully planned it so that new promoters don’t have to set aside new capital against it, ”said the person mentioned above.
The bank administrator had also launched a tender for two French-made jets and a yacht to collect the loans. These assets belong to HDIL owners Rakesh Wadhawan and his son Sarang Wadhawan, the main defendant of the cooperative bank scam.
In September 2019, RBI put severe restrictions on PMC Bank, including on cash withdrawals, as part of an investigation into accounting failures. Cash withdrawals were initially capped at ₹1,000 per account for six months, but gradually relaxed to ₹100,000 in June of last year.
Almost two years after the restrictions were first put in place on the bank, RBI authorized Centrum Financial Services and the payment platform BharatPe to buy out PMC Bank. Centrum Financial Services is a descendant subsidiary of listed entity Centrum Capital, and provides credit to small and medium-sized businesses ranging from ₹2 lakh to ₹2 crores. Resilient Innovations Pvt. Ltd, which operates BharatPe, will be an equal partner of the small finance bank. The promoters of the new bank are committed to bringing ₹1,800 crores per phase. The small financing bank will have an initial capital of ₹500 crores.
Any recovery from HDIL will depend on the procedure at NCLT. The real estate company in difficulty which must ₹6,840 crore to lenders are subject to insolvency proceedings. According to a Express Financial Last year, HDIL received six expressions of interest from suitors, including Adani Properties Private Ltd (APPL), Suraksha Asset Reconstruction and Sunteck Realty. None of the three potential bidders submitted a resolution plan with a deadline of January 7. Instead, APPL filed for interim relief, requesting a partial resolution of the company.
“Since the banks have written off this account, whatever they collect will go into income for the year in which it is made. Asset recovery will depend on HDIL’s resolution plan under the Insolvency and Bankruptcy Code, ”said Girish Rawat, partner at Luthra & Luthra.
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