What would it mean for a troubled PMC Bank to become a small finance bank?

With the takeover of Punjab and Maharashtra Cooperative (PMC) Bank and turning it into a small finance bank (SFB), it will be the first troubled cooperative bank to make this transition. There are not many cooperative banks that have opted for the transition or opportunity offered to cooperative banks to become SFBs.

Shivalik Small Finance Bank Limited (SSFB), which commenced operations as a SFB with effect from April 26, 2021, was the first cooperative bank to make this transition.

What would this transition mean:

- For Primary (Urban) Co-operative Banks (UCBs) transiting into SFBs initial requirement of net worth shall be at Rs 100 crore, which will have to be increased to Rs 200 crore within five years from the date of commencement of business.

- SFBs will be given scheduled bank status immediately upon commencement of operations.

- SFBs will have general permission to open banking outlets from the date of commencement of operations. But in this occasion, the bank has more than 100 branches.

- SFBs can fund the financial needs of the underprivileged sections through basic banking activities of lending and deposits.

- These banks can sell mutual funds, insurance products and pension products and so on.

- In the case of PMC, the investors 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.

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- SFBs can turn into full-fledged banks based on the approval of RBI.