The Punjab and Maharashtra Co-operative Bank or the PMC Bank caters to the financial needs of traders, self-employed, transport operators and micro and small enterprises. Now, the PMC Bank is in the news for the wrong reasons. The RBI has placed PMC Bank under directions following a scrutiny. RBI has found irregularities regarding breach in exposure limits and loan classification of a Mumbai based real estate firm.
RBI has passed directions to the PMC Bank where deposit withdrawals are limited to just Rs 1,000 a customer for 6 months. The PMC Bank cannot renew loans and advances, make an investment, incur a liability which is borrowing funds or accept fresh deposits. Several thousand customers have lined up outside PMC bank branches in total panic. The question on their mind? What about the money in their savings bank accounts?
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The PMC Bank based in Mumbai is a multi-state urban co-operative bank. It has 137 branches spread across 6 states of Delhi, Maharashtra, Karnataka, Goa, Andhra Pradesh and Madhya Pradesh. If you look at March-end 2019 deposits and advances, it’s Rs 11,617 Crores and Rs 8,383 Crores, respectively. PMC Bank ranks among the top 10 co-operative banks in India.
PMC Bank had given a loan of Rs 2,500 Crores to the now-bankrupt HDIL, which is a real estate firm. RBI put regulatory restrictions on PMC Bank after it failed to report the loans, which were offered to a real estate firm as bad loans, despite the firm facing severe financial stress. Now, each customer cannot withdraw more than Rs 1,000 a day for 6 months. PMC Bank has more than Rs 11,000 Crore in deposits across 137 branches.
So why did RBI impose regulatory restrictions on PMC Bank? RBI felt the loan was a complete loss. This is why it wanted PMC Bank to make a provision of 10% for the total loan.
You or any depositor of PMC Bank is allowed to withdraw more than Rs 1,000 for his/her own marriage or any medical emergency.
RBI can enhance the withdrawal limits from Rs 1,000 to a higher figure. Back in February, RBI increased withdrawal limit from Rs 1,000 to Rs 50,000 per depositor for the Goa-based Mapusa Urban Co-operative Bank.
If the RBI feels that the bank can get back into shape in a short span of time, normal operations would start. If not, RBI would extend the period. There are co-operative banks which have been under the RBI umbrella for 2-3 years.
The RBI allows setting of loans by a borrower (loans which are not repaid), against his/her money in the deposit account.
If there are violations in KYC or anti-money laundering, the bank would face a monetary penalty. RBI has in the past, imposed penalties on co-operative banks for violation of guidelines. RBI imposes monetary penalties on banks if they violate guidelines.
If assets are not enough to meet liabilities or run the normal operations of the bank, RBI has the right to recommend the eventual liquidation of the co-operative banks. RBI would liquidate the bank if there is inadequate capital or no scope for revival. The RBI would request the Registrar of Cooperative Societies to appoint an official liquidator and wind up the bank.
Each deposit is insured up to Rs 1 Lakh from the DICGC. This is Deposit Insurance & Credit Guarantee Corporation. Liquidation of the bank is bad news for depositors who have more than Rs 1 Lakh.
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