RBI Directives to PMC Bank Leave Fate of Depositors Hanging in Balance

On September 24, the Reserve Bank of India (RBI) barred the Punjab and Maharashtra Cooperative Bank Limited (PMC) from regular business transactions for the next six months and restricted the withdrawal limit of the depositors to not more than Rs 1,000 during the period.

This order has come as a sudden shock to the bank’s customers who gathered in panic and began protest demonstrations at all the 137 branches of the bank across the country to figure out the fate of their money.

However, the RBI has not specified why it has imposed the sudden restriction on one of the leading urban cooperative banks in the country. But PMC Bank’s Managing Director Joy Thomas in a statement on Tuesday, September 24, claimed that the regulatory restrictions were imposed due to irregularities disclosed to the apex bank. “As the MD of the bank, I take full responsibility and assure all the depositors that these irregularities will be rectified before the expiry of six months,” Thomas was quoted as saying.

The RBI issued the directions under sub-section (1) of Section 35A of the Banking Regulation Act, 1949, according to which the central bank in “public interest” can “prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors” and the Section 56 of the Act gives the RBI similar powers over co-operative banks.

What does the financial results of PMC Bank reveal?

According to the annual report 2018-19 of PMC, as on March 31 2019, the bank had total deposits of Rs 11,617.34 crore and advances of Rs 8,383.33 crore. In the financial year 2018-19, the cooperative bank posted a total revenue of Rs 1,297.98 crore. The revenue was recorded as Rs 1,170.49 crore in 2017-18.

PMC Bank posted a net profit (after tax) of Rs 99.69 crore at the end of March 2019.

Also read: Thousands of PMC Bank Depositors Panic as RBI Limits Withdrawals to Rs 1,000 in 6 Mths

However, during 2018-19, PMC Bank’s non-performing assets (NPA) jumped twice to 2.19% from 1.05% in the past year. That is, the bank classified an amount of Rs 2,681 lakh worth of advances or loans as doubtful of recovery.

But the NPA problem is spread across cooperative banks in the country, data reveals. According to the latest data published by the RBI, the gross non-performing assets of urban co-operative banks (UCBs) stood at 7.1% of gross advances, as of 2017-18. The NPAs of rural co-operative banks (RCBs) are even worse. The gross NPAs of state co-operative agriculture and rural development banks, and primary co-operative agriculture and rural development banks were recorded as 25% and 38.3% of total advances, respectively.

There are 1,551 UCBs at the end of March 2018 and 96,612 RCBs at the end of March 2017. 

What Happens to the Depositors?

For the next six months, the depositors can only withdraw upto Rs 1,000, irrespective of their deposited amounts. However, JB Bhoria, the RBI appointed administrator of PMB Bank assured depositors that there is no need to panic as the bank is insured under Deposit Insurance and Credit Guarantee Corporation (DICGC), through which deposits of up to Rs 1 lakh are covered.

Similar Cases

It is not the first time that the RBI has imposed such strict restrictions on co-operative banks. But, the case of PMC Bank is surprising considering the vast network of the lender and its massive deposits. Similar directives were imposed on the Indian Mercantile Co-operative Bank Limited, Lucknow in June 2014 and Kopal Co-operative Bank Limited, Mumbai in March 2017. In both of these two cases, the directives remained to continue as the apex bank has extended the restrictions every six months.

Also watch: RBI Eases Norms for NPAs: Who Will It Benefit?