Mumba-based Punjab and Maharashtra Cooperative Bank (PMC Bank) received a notice by the
Reserve Bank of India (RBI) on September 24, stating the bank has been put under regulatory restrictions for a period of six months.
It took not much time for the vexed customers to storm various branches of the bank, withdrawing their money and demanding an explanation from the PMC authorities.
In an attempt to avoid the furious customers, many of its officials opt not to be available at their respective branches and ATMs were shuttered down with security guards putting up an apology from the managing director.
The bank authorities have also deployed police at their branches to ensure things are under control.
Why RBI put PMC under this restriction?
PMC Bank managing director
Joy Thomas told CNBC-TV18 in an interview that RBI imposed restrictions on the bank because of divergences in non-performing assets (NPAs) but added that the step taken by the central bank is too harsh.
"RBI could have restricted only the lending," he suggested.
Gross underreporting of bad loans is one of the major reason why RBI has put restrictions on PMC Bank says one of the media report stating two people award of the development. Presently, RBI is looking into the books of the bank, the report added.
It also mentioned that the bank’s management has come clean and the central bank has, therefore, put restrictions on withdrawals as a precautionary measure to avoid a run on the bank.
While the bank’s gross bad loans, as per its FY19 annual report, was at 3.76 percent of its advances, the bank has now disclosed that it is much higher.
What happens when RBI put this restriction?
When RBI puts a bank under its directions, the bank's management is superseded and the board is dissolved. In PMC Bank's case, it is believed that the regulator found irregularities in lending.
Underreporting of non-performing assets or higher than permitted exposure to the same group accounts could have led RBI to take the step. However, an inspection is currently underway.
What other recourse do depositors have?
For the time being, depositors can withdraw only up to Rs 1,000 from the bank, irrespective of the type, total balance or the number of accounts.
They can also offset their loan with their deposits only if both accounts are held with PMC Bank. Besides, they can renew existing term deposits on maturity in the same name and same capacity.
In case of an emergency expense like hospitalisation etc., the RBI may grant an exception on a case-by-case basis. Though the probability to access more money from the bank is quite low.
What are the repercussions faced by the PMC Bank and how will it affect depositors?
After being restricted, the bank cannot accept fresh deposits nor grant new loans without prior approval from the RBI. As a result, depositor’s EMIs from a PMC Bank account towards loans with other banks will not be honoured.
If their account is linked to monthly utility services, the payments will not go through. Also, ATMs have been taken off the payment network to avoid withdrawal from other ATMs. Online banking has also halted so no funds can be transferred online. The norms apply to all customers, including senior citizens awaiting pension.
How soon can depositors access their full money?
Only after six months, RBI will decide if it can relax some restrictions or extend the period based on the bank's books. If the discrepancies found can be fixed over the course of time, by the sale of assets or other measures, the bank's functions will be reinstated.
However, if RBI found that it is not in the interest of the bank's depositors to keep it running, it may lead to complete closure of the bank. In such a scenario, the bank's arrangement with the Deposit Insurance and Credit Guarantee Corporation (DICGC) will kick in and customers will be eligible to claim up to Rs 1 lakh of their deposits with the bank.
Until further orders from RBI, customers can only wait and watch whether they would receive their money or not.
What is the bank’s take?
"We have ample assets to cover all liabilities of the depositors," Joy Thomas told
Thomas also said that it was not a single group or company that was responsible for the current state of PMC Bank.
"I cannot disclose the name of the companies right now as it is not a single group or company. The investigation is going on and more details can only be revealed after that," he told CNBC-TV18.
The managing director further assured that the bank will come out of the situation very soon and will repay the depositors."The bank will be open for the customers as per its regular working hours. We assure you that your money is in safe hands," he mentioned in a letter to the depositors.