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  • 30 September, 2019

  • 3 Min Read

Trust Deficit

GS-III: Trust deficit


It has been a nightmare of a week for thousands of customers of the Punjab and Maharashtra Co-operative Bank (PMC),who were told last Tuesday by the RBI that no more Rs.1,000 could be withdrawn from their accounts for a period for 6 months.

What are the implications of the decision?

  • The PMC bank is a leading urban cooperative bank headquartered in Mumbai.
  • The decision sent shock waves among thousands of its depositors.
  • Panic-stricken customers rushed to bank’s branches across the state and were unable to withdraw more than Rs 1,000.
  • The Bank has a deposit base of Rs 11,617 crore and operations across 7 states.
  • It has been put under the scanner by the RBI after “irregularities” were disclosed to RBI.
  • It ranks among the top 10 cooperative banks in the country.
  • Moreover, the RBI restrictions will remain in force for 6 months.
  • Given these, the unrest among customers is likely to continue.

What went wrong?

  • Reporting - With a deposit base of just over Rs 11,000 crore, PMC bank reported a net profit of Rs 99.69 crore in 2018-19 as against Rs 100.90 crore in 2017-18.
  • The bank showed 3.76% (or Rs 315 crore) of advances (Rs 8,383 crore) as gross nonperforming assets (NPAs) in March 2019.
  • This was a good performance considering that public sector banks recorded over 10% gross NPAs.
  • With this, the total bad loans could be between Rs 2,000-2,500 crore.
  • Though this was not flagged in the Annual Report of 2018-19, the RBI was following it in the wake of huge divergence in bad loan reporting.
  • HDIL - The bank was funding a clutch of companies, mainly in the troubled real estate sector, led by Housing Development & Infrastructure Ltd (HDIL).
  • Notably, the Wadhawans of HDIL group had close links with PMC Bank for a long time.
  • PMC had given loan to Wadhawan even after HDIL defaulted on its loans to other banks.
  • Notably, commercial banks have already declared HDIL a defaulter.
  • HDIL was also taken to National Company Law Tribunal (NCLT) for insolvency proceedings.
  • Recently, NCLT admitted an insolvency plea moved by the Bank of India against HDIL in connection with a Rs 522-crore loan default.
  • PMC, however, claimed that the loan was much lower than Rs 2,500 crore quoted in the media.

Way Forward:

RBI shares regulatory responsibilities over such banks with stares register of co-operative society further mires the problem .With over 1,500 urban co-operative banks operating the country and a few of them already under RBI imposed restrictions , a new road map is essential for their future course.


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