What PMC means.

GS-III: What PMC means?

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In at least three of the major financial sector scams in the last couple of months in India, featuring Punjab National Bank, IL&FS, Punjab and Maharashtra Cooperative Bank, apart from poor governance and fraudulent practices, a common thread has been a supervisory failure.

Supervision

The country’s leading financial sector regulator, RBI, has been responding only after the event.
As in IL&FS, in the PMC case too, there appears to be culpability on the part of the management and the board of the bank.
Bank’s loan exposure to a single firm, HDIL, alone constituted 73% of its assets and several dummy accounts were created to camouflage this.
The issue of dual control by the RBI and state governments has been cited as a hurdle by the regulator for its inability to effectively supervise cooperative banks.
Limitations in superseding the board of directors or removing directors of these banks, unlike in commercial banks.

Cooperative banks & Credit delivery:

The role of co-operative banks in ensuring credit delivery to the unorganised sector and last-mile access, to small businesses, is huge, as the large banks continue to focus on bigger cities and towns.
A recent RBI report shows that fund flows to the commercial sector have declined by 88% in the first six months of this current fiscal. That would have hurt small businessmen, traders, and the farm sector.

Regulation – RBI

The central bank has already started building an internal cadre for the supervision of banks and other entities aimed at enhancing its oversight capabilities.
This should be complemented by legislative changes which could lead to greater regulatory control and powers for the RBI.
An insolvency regime for financial firms is the need of the hour.
India needs not just a few large banks and lenders with a national or regional presence but also other players such as cooperative banks, small finance, and payment banks.
There is a need for greater accountability on the part of India’s financial regulators.
Carving out a separate authority for supervision may only lead to regulators working in silos.

Source: Indian Express

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