Mumbai: Exactly a year after the Reserve Bank of India moved to take charge of the fraud-hit Punjab and Maharashtra Co-operative (PMC) Bank, the process to fix the bank hasn’t yielded any results. It’s worse off today than it was in September 2019.
As it stands, the bank’s net worth is wiped out, its depositors are struggling with restrictions on withdrawal, and the banking regulator is no closer to a resolution.
Finance Minister Nirmala Sitharaman acknowledged as much this week when she moved the Banking Regulation (Amendment) Bill in Parliament to protect the interests of depositors.
She told the Rajya Sabha that while the government was able to quickly resolve the crisis at Yes Bank as it was governed by commercial bank rules, resolution for the PMC Bank crisis is yet to be found.
The bank’s financial condition
The PMC Bank has a deposit base of around Rs 10,000 crore with over 9 lakh depositors. While the RBI’s decision to raise the withdrawal limit to Rs 1 lakh in June allowed nearly 84 per cent depositors to take out their entire money, funds of the high-value depositors are still stuck.
Not only individual depositors, many cooperative societies funds are also stuck with the PMC, including the RBI employees’ cooperative society, which has around Rs 200 crore in the bank.
The bank’s financial condition has also worsened considerably.
While its loan book contracted from Rs 8,000 crore to Rs 2,500 crore due to the massive Rs 6,500-crore fraud in reporting of loans to realty developer HDIL, interest on the deposits continues to accrue even as interest earnings on loans have dropped sharply.
The bank’s liabilities have gone up substantially in the last one year as compared to its income. The bank’s paid-up capital has turned negative.
This means the PMC Bank is in no position to service its deposits.
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‘Serious challenges’
The banking regulator is aware that it will be a herculean task to revive the bank.
In May, the RBI responded to a query from depositors, saying unlike the case of commercial banks, it has no powers to draw up an enforceable scheme of reconstruction of a cooperative bank.
“Any proposal of merger of PMC Bank with another/nationalised bank will be examined by Reserve Bank, as and when received,” the central bank said in the communication, which ThePrint has reviewed. The regulator also added that efforts are under way to resolve the matter in the best possible way as soon as it could be done.
In a statement Tuesday while appointing a new administrator for the PMC, the RBI admitted that with the bank’s net worth being wiped out along with erosion in deposits, there are “serious challenges” to find a workable solution for the bank.
“The bank has also been making efforts for recovery of NPAs (non-performing assets) although the progress has been constrained because of the COVID-19 pandemic and legal complexities,” the RBI said.
It added that the central bank continues to explore the possibility of finding a viable and workable solution for the resolution of the bank.
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Proposals to remedy situation
According to top central banking sources, efforts were made to convince the Maharashtra government to take possession of the land assets of HDIL promoters — the alleged kingpin of the PMC Bank fraud.
The Enforcement Directorate (ED) had traced just outside Mumbai around 2,100 acres of land worth Rs 3,500 crore, belonging to the Wadhawans, the promoter of HDIL, of which around 600 acres was mortgaged to PMC Bank. The ED is probing money laundering charges against the Wadhawans.
The proposal was for the government to take over the land, and then issue bonds to PMC Bank, which are payable after some years, in lieu of the land. In the meantime, efforts could be made to revive the bank while depositors could be assured that they will get their deposits after some years.
The state government, however, is yet to take any decision on this.
A second proposal was to merge the beleaguered lender to the Maharashtra State Cooperative Bank, said the sources.
“RBI told us to work on the merger proposal,” said Anita Lohia, a depositor of PMC Bank.
“We submitted the merger proposal of MSC Bank to the RBI on 1 June. More than two months have passed and nothing happened. Now, RBI cites some technical problems for not proceeding with the proposal,” she said. “Due to the pandemic, there have been job losses. Savings are for times like these, but we cannot get our money back due to the restrictions.”
Lohia said the RBI has kept the depositors in darkness, not sharing any updates with them.
“They don’t even tell us how much property has been seized and recovered. There has been no communication or updates to us from RBI or the bank,” she said.
ThePrint reached the RBI via email for a comment on this issue, but there was no response. This report will be updated if a reply is received.
On Tuesday, Parliament amended the Banking Regulation Act to bring cooperative banks under the supervision of the RBI, aimed at protecting the interest of depositors.
The amended Act will enable the RBI to restructure distressed cooperative banks without placing them under moratorium. However, it’s still to be seen if this brings resolution for the crisis-hit cooperative bank.
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After having retired from Indian Navy in 2000, I had put all my savings in Oshiwara branch of PMC Bank which is located at 300 steps from my residence. As the age catches up, it is difficult to manage bank affairs. Since this bank was the closest to my residence, we became its customers. With all my deposits locked up in the PMC Bank for the last two years, it is becoming difficult to manage day to day affairs. Never thought that in my final days of life as a Veteran Defence Force person, I will have to live on borrowed money despite having sufficient money in the PMC Bank. Urge the Government to resolve the issues at the earliest. Best regards. Commodore Padmakar Singh and Purnima Singh Andheri West
Why should depositor suffer while no fault of us bank and rbi should solve the problem
Lack of political will and negligence on the part of RBI landed the depositors of PMC bank in such a miserable condition. As a premier financial institution RBI should have engaged in eternal Vigilance in the Day to day functioning of the PMC bank. They failed in their duties and the poor depositors are suffering for their no wrong.
The RBI Governor, the FM, the ED, the state government have had a whole year to seize the assets of the cheats involved, auction the same and reimburse us depositors. All it takes is the will to do so. Instead retired bank cronies are given employment at PMC depositor expense, 137 branches continue to operate with most staff whiling away their time, items viz two planes and a yacht no one would want to purchase are put on auction and the cheats hold on to their extensive land parcels and other valuable assets whilst enjoying home cooked meals in detention.
PMC bank issue is due to negligence of RBI. RBI had not taken any action on letter by one of the PMC bank employee in 2011 to RBI in which she had mentioned all the mess happening in bank. Why innocent depositors should suffer for negligence of RBI? RBI should infuse the needed 5000 crore and merge with suitable bank. RBI can recover the money from siezed assets of culprits.