Bombay HC upholds RBI scheme merging PMC Bank into Unity Bank

What the Record Shows

The Punjab and Maharashtra Co-operative (PMC) Bank collapse ended, on the regulatory side, not in a penalty but in a rescue. After the Reserve Bank of India (RBI) superseded PMC Bank's board in September 2019, the RBI framed and the Central Government sanctioned the Punjab and Maharashtra Co-operative Bank Ltd (Amalgamation with Unity Small Finance Bank Ltd) Scheme, 2022, under Section 45 of the Banking Regulation Act, 1949. Per the RBI's press release, the scheme came into force on its notification date, 25 January 2022, and transferred PMC Bank's assets and liabilities, including deposits, to Unity Small Finance Bank Ltd (USFBL).

That scheme was challenged, and the challenge failed. By judgment dated 9 March 2026 in Bhalchandra Dinkar Gondekar v. Reserve Bank of India, a Division Bench of the Bombay High Court (Justices Bharati Dangre and Manjusha Deshpande) dismissed seven writ petitions against the scheme, holding it "framed in consonance with the statutory provisions and in larger public interest." The court recorded that Rs 4,852.33 crore had been paid to depositors as at 2 February 2026, and noted that liquidation of the bank would have capped recovery at the Rs 5 lakh deposit-insurance limit per depositor.

The criminal strand runs separately. The Mumbai Police Economic Offences Wing (EOW) registered an FIR alleging a loss of Rs 4,355.43 crore, naming Housing Development and Infrastructure Ltd (HDIL) promoters Rakesh Wadhawan and Sarang Wadhawan and PMC Bank's then chairman and senior officials. Those individuals are accused, not convicted; no criminal trial in the matter has concluded. No individual is named as an accused in the RBI amalgamation scheme itself, which is a regulatory instrument, not a criminal proceeding.

How It Worked

The regulatory failure PMC Bank represented was one of concentration. According to the EOW's FIR, the bank's exposure to the HDIL group exceeded Rs 6,500 crore out of a total loan book of about Rs 8,880 crore, roughly 73 per cent lent to a single connected group, far beyond prudential single-borrower limits.

The EOW alleges that this concentration was actively concealed. Per the FIR, 44 loan accounts of HDIL and its group companies, whose outstanding balances were large, were replaced in the bank's core banking system with 21,049 fictitious loan accounts of much smaller size, so that the true scale of the exposure did not surface before the RBI or the bank's auditors. On this account, the reported book bore little relation to the real one, and the risk went undetected until it crystallised.

The regulatory response followed the discovery. The RBI superseded the board in September 2019 and imposed withdrawal restrictions that froze deposits, then worked towards a resolution rather than a liquidation. The amalgamation route under Section 45 allowed a new banking entity, USFBL, to take over the deposits with a staggered repayment structure, which the RBI and the government presented as protecting more depositors than a wind-up would have. The Bombay High Court accepted that the classification between retail and institutional depositors, the up-to-ten-year repayment schedule and the reduced interest terms were within the statutory power the scheme was framed under.

On the criminal side, the EOW's investigation led to arrests of the named accused and, working alongside the Enforcement Directorate, to attachment of assets valued at about Rs 3,500 crore. Those attachments are investigation-stage measures; they are not a judicial finding of guilt against any individual.

Who Lost Money

PMC Bank had roughly nine lakh depositors when it froze. The great majority, about 96 per cent, held balances under Rs 5 lakh and were made whole relatively early, in effect covered within the deposit-insurance threshold that also anchored the scheme.

The burden fell on the larger depositors. Housing societies, charitable trusts, senior citizens and co-operative bodies that held sums above the insured limit faced staggered payouts stretched over as long as ten years, at reduced interest that the Bombay High Court noted ran at 2.75 per cent simple interest after five years. For depositors who had parked institutional or retirement money in what they treated as a safe bank, that meant years of restricted access to their own funds, and several depositor deaths were reported during the freeze.

The Rs 4,852.33 crore paid out as at 2 February 2026, as recorded in the 9 March 2026 judgment, is the measure of recovery under the scheme to date. It is real money returned, but it was returned slowly and, for large depositors, incompletely against the interest they would otherwise have earned.

Where It Stands Now

The amalgamation scheme stands upheld. After the Bombay High Court dismissed the challenges on 9 March 2026, the Supreme Court, before Justices P.S. Narasimha and Alok Aradhe, declined to interfere with that judgment. Importantly, the Supreme Court did not rule that depositors had been treated fairly; it left open the underlying question of whether the "interest of depositors" under Section 45 is to be assessed by the number of depositors or by the value of their deposits. That distinction, which decides whether protecting many small depositors can justify hardship to fewer large ones, remains legally unsettled.

The criminal proceedings continue. The HDIL promoters and PMC officials named by the EOW remain accused persons whose trial has not concluded, and the roughly Rs 3,500 crore in attached assets is held pending those proceedings. An FIR contains allegations, not findings of guilt; the accused are presumed innocent until proven guilty, and due process continues.

What It Means

PMC Bank reset how India thinks about co-operative-bank depositors. The episode fed directly into the raising of deposit insurance to Rs 5 lakh and into amendments bringing co-operative banks more firmly under RBI supervision, and it established the amalgamation-under-Section-45 template as the preferred alternative to liquidation for a failed bank, precisely because it can return more to more depositors over time.

The practical takeaway for a depositor is about the limits of that protection. Deposit insurance under the DICGC covers up to Rs 5 lakh per depositor per bank, and it is that figure, not the full balance, that is guaranteed if a bank fails; amounts above it depend on recovery and, as PMC showed, can be paid slowly. Spreading large balances across banks and understanding what a fixed deposit does and does not guarantee is the concrete lesson, and the returns side of that can be modelled with a fixed deposit calculator. For how regulators have handled comparable failures, the Oquilia enforcement archive follows these actions from order to appeal, including matters such as the SEBI final order against Karvy Stock Broking.

FAQ

Does this mean the people named are guilty?

No. The HDIL promoters and PMC Bank officials named in the Mumbai EOW's FIR are accused, not convicted, and no criminal trial in the matter has concluded. An FIR contains allegations, not findings of guilt; the accused are presumed innocent until proven guilty, and due process continues.

What exactly did the RBI and government order?

They sanctioned the Punjab and Maharashtra Co-operative Bank Ltd (Amalgamation with Unity Small Finance Bank Ltd) Scheme, 2022, under Section 45 of the Banking Regulation Act, 1949, effective 25 January 2022. It transferred PMC Bank's deposits and liabilities to Unity Small Finance Bank with a staggered repayment structure for large depositors.

Did the courts say depositors were treated fairly?

Not exactly. The Bombay High Court upheld the scheme as lawful and in public interest, and the Supreme Court declined to interfere. But the Supreme Court expressly left open whether depositor interest under Section 45 should be judged by the number of depositors or by the value of deposits, so the fairness question was not conclusively decided.

Have depositors got their money back?

Most small depositors were made whole early, as about 96 per cent held under Rs 5 lakh. The 9 March 2026 judgment recorded Rs 4,852.33 crore paid out as at 2 February 2026. Large depositors face payouts staggered over up to ten years at reduced interest, so recovery for them is partial and slow.

How much of a bank deposit is actually guaranteed?

Deposit insurance under the DICGC Act, 1961 covers up to Rs 5 lakh per depositor per bank, including principal and interest. Amounts above that are not guaranteed and depend on the bank's recovery or on a resolution scheme like this one.

Where can I read the official record?

The RBI's press release on the scheme and the Bombay High Court's 9 March 2026 judgment are both public and are linked at the foot of this report.

This report is based on the RBI press release sanctioning the PMC Bank amalgamation with Unity Small Finance Bank and the Bombay High Court judgment dated 9 March 2026 in Bhalchandra Dinkar Gondekar v. Reserve Bank of India, reviewed on 29 July 2026.