For the first time the Reserve Bank of India (RBI) has admitted that it has noticed three major irregularities in the operations of multi-state Maharashtra & Punjab Co-operative (PMC) Bank that necessitated immediate action under the Section 35A of the RBI Act.
These three violations include major financial irregularities, 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, the majority of its nearly 100 branches are 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 focussing on making its loss-making branches profitable.
The financial irregularities and wrongdoing and under reporting of its (lending) exposure will change the bank's financial numbers. Take, for example, the bank's gross non-performing assets (NPAs) were at 3.76 per cent as on March 2019. The net NPAs were at 2.19 per cent. These NPA figures might change in view of irregularities noticed by the RBI. The bank loan book is around Rs 8,383 crore. The bank says its loans are mostly retail in nature (home, car and gold loans) including business loans and loans to MSMEs. There is every likelihood that the bank may have given some loans to real estate and other market players.
The bank has a balance sheet size of Rs 13,619 crore. The size is quite small compared to commercial banks. Take, for example, the bank's balance sheet size is equal to some of old private sector banks such as Dhanalakshmi Bank and Catholic Syrian Bank. In the just concluded financial year, the bank earned a total income of Rs 1,297 crore and profits of Rs 99.69 crore. So, it's a profitable bank. A retail bank largely, it was also active in the foreign exchange business. In addition, the bank also gets some income from trading activities. The capital adequacy of the bank stands at 12.62 per cent against the minimum capital adequacy for a commercial bank at 9 per cent.
The bank has a deposit base of Rs 11,617 crore. Unlike many cooperative banks, the PMC Bank was not offering higher level of deposit rates. The bank's savings rate was 4 per cent per annum for a year as against SBI's 3.5 per cent. The term deposit rate at 7.5 per cent for a year is similar to most commercial banks.