The restrictions imposed on the Punjab and Maharashtra Cooperative Bank (PMC Bank) by the Reserve Bank of India has turned its account holders jittery and sent shock-waves in the banking circles.
In the financial year 2018-19, the bank saw increase in stressed assets which affected its financial position. PMC Bank's asset quality declined as gross non-performing assets (NPAs) ratio - bad loans as a percentage of gross advances - rose to 3.76 per cent, versus 1.99 per cent in the previous year. Net NPA too expended to 2.19 per cent during FY19 as compared to 1.05 per cent in FY18. The bank's absolute gross NPA increased more than two-fold to Rs 315.24 crore in 2018-19 from Rs 148 crore in 2017-18.
According to PMC Bank's annual report, the bank had made requisite provision as per the guidelines of RBI, to curtail the non-performing asset (NPA). To cleanse the balance sheet, the bank sold NPA portfolio to CFM Asset Reconstruction Pvt. Ltd. (CFMARC) for Rs 105 crore as on March 30, 2019.
The RBI issues directives when banks breach banking regulations. In this case, the Reserve Bank invoked Sub-section (1) of Section 35A of the Banking Regulation Act, 1949 to clamp down on the PMC's banking activity for six months.
For FY19, the co-operative bank had posted a net profit of Rs 99.69 crore as against Rs 100.90 crore reported in a year-ago period, registering a marginal decline of 1.20 per cent. However, the PMC Bank's total income rose by 10.89 per cent to Rs 1,297.98 crore versus Rs 1,170.49 crore in the previous year.
While the total advances of the bank increased 12.86 per cent year-on-year (y-o-y) to Rs 8,383.33 crore, total deposits climbed 16.89 per cent to Rs 11,617.34 crore during the financial year ended March 31, 2019.
Meanwhile, the bank is confident of coming out of the RBI's directive within six months and hopes to rectify its deficiencies, PMC Bank MD Joy Thomas said on Tuesday.
"We regret the violation of RBI rules. Due to this, our customers may face difficulties for six months. As MD, I take responsibility for this. With this, I assure all depositors that before 6 months we will rectify our deficiencies," Thomas said.
He said that all efforts will be made to remove the restrictions by rectifying irregularities.
His comment came after the Reserve Bank of India (RBI) imposed restriction on the Punjab & Maharashtra Cooperative Bank Ltd (PMC), Mumbai from carrying out the majority of its routine business transactions for a period of six months.