The Reserve Bank of India's (RBI) enhanced withdrawal limit of Rs 50,000 for the small depositors of Punjab and Maharashtra Cooperative Bank Ltd (PMC Bank) has resulted in reducing the outstanding deposits by only 10 per cent.
In the last four months, the RBI had increased the deposit withdrawal limit four times. The initial amount allowed by RBI was just Rs 1,000. This was increased to Rs 10,000 per depositor and later to Rs 25,000. The RBI again revised it to Rs 40,000 and later to Rs 50,000 per depositor.
Despite higher limits, the outstanding deposits of the bank have reduced from around Rs 11,800 crore in September, when the RBI took charge of the bank, to Rs 10,800 crore by November-end. The RBI had stated earlier that the higher limit of Rs 50,000 per depositor covers more than 78 per cent of the depositors (not deposited amount).
Clearly, a bulk of the deposits of PMC Bank still locked because of RBI's takeover. The PMC Bank, currently facing action under Section 35A of the RBI Act, is under the charge of the central bank's administrator. The administrator would review the position in the next three months. It could be liquidation, revival, or a merger with another bank.
In the PMC Bank case, the RBI has also allowed withdrawals up to Rs 1 lakh on grounds of medical emergency and hardships. The hardship clause includes marriage, education, livelihood for senior citizens, etc. But the fate of many depositors with more than Rs 50,000 in the bank still hangs in balance.
Recently, there was a demand from the political corridors that the PMC Bank should be merged with Maharashtra State Cooperative Bank, but the new Shiv Sena-led state government led is not very keen on this proposal.
Business Today had earlier reported that PMC Bank has disbursed loans to many entities connected to Wadhwan-owned HDIL. The chances of HDIL repaying the money look slim as the company has already defaulted on loans and is facing bankruptcy.
The RBI's initial inspection of PMC Bank had earlier shown three major irregularities, which included financial irregularities, complete failure of internal control and systems, and wrongdoing and under-reporting of its lending exposure.
PMC Bank, a 36-year old institution, is a cooperative bank regulated by the RBI and registered under the Cooperative Societies Act. The bank has 137 branches spread over half a dozen states. In fact, it has almost 100 branches in Maharashtra. The other states where it has branches include Karnataka (15), Goa (6), Delhi (6), and Gujarat (5). For the last one year, the bank has been focusing on making its loss-making branches profitable.
The PMC Bank debacle is not the first or the last case of misgovernance in the cooperative bank sector. There are currently close to a dozen urban cooperative banks under the charge of RBI administrator. Way back in 2001, cooperative banks came into the spotlight after the involvement of Madhavpura Mercantile Cooperative Bank in the Ketan Parekh scam.
In the last decade, the RBI did strengthen guidelines for cooperative banks pertaining to KYC, priority sector and also anti-money laundering. In fact, consolidation and liquidation brought down their number by 375 to 1,551 banks since early 2000.
Post the PMC Bank debacle, the RBI has restricted their lending to large corporates or a group of companies under a large corporate. The bank will also need prior approval of RBI for CEO appointments.