Tuesday, April 23, 2024
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Howdy Indian Banks?

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The Reserve Bank of India has put limitations on the withdrawal of amount by account-holders of the Mumbai-based Punjab and Maharashtra Co-operative Bank (PMC Bank). The Reserve Bank of India also restricted PMC Bank from making any advances or loans to its customers. People are in panic, the investors are clueless, and banks would have informed the customers well in advance. This could not have been an overnight decision. Why does the RBI not warn the depositors in Advance? At least, the customers would have not ventured to keep their hard earned money in such co-operative banks all for the sake of a per cent or more of higher interest. As always, it is the common man who is the victim of nefarious activities of the bank directors. Can we expect a change here from the present all-powerful government?

Many co-operative banks have always been involved in misconducts. It is sad that genuine customers also suffer from such punishments. The RRBs were opened to serve the customers of rural areas and ensuring development of rural areas. These co-operative banks were established under RRB Act .The central government and state government and sponsor banks are share holders .To reduce cost operations lower pay scales were fixed for staff and not pensionable. But these have been revised and RRB staff gets all facilities of PSB staff. Many RRBs were found not viable and loss making. Some of them were merged. As performance of RRBs was not satisfactory, a committee on RRBs was established. The Committee on Rural Banks suggested merger of RRBs with concerned Sponsor Banks. The suggestion on RRBs was accepted by RBI and suggested the same to Govt of India. The GOI is yet to take a decision in the matter. Mostly in coming years RRBs are likely to be merged with sponsored Public Sector Bank.

Now, the mergers of the banks are common. But the overnight shocks to account holders, such restrictions are new. RBI has put restrictions on Punjab and Maharashtra Co-operative Bank (PMC Bank).Depositors can withdraw from their accounts in the urban co-operative bank.

According to the Directions, depositors will be allowed to withdraw a sum not exceeding ₹1,000 of the total balance in every savings bank account or current account or any other deposit account by whatever name called, subject to conditions stipulated in the RBI Directions. PMC Bank can continue to undertake banking business with restrictions till further notice/instructions from RBI. The Reserve Bank may consider modifications of these directions depending upon circumstances. The restriction will remain in force for a period of six months from the close of business of the bank on September 23. Further, according to the RBI’s restrictions on the urban cooperative bank, PMC Bank will also not be able to grant or renew any loans and advances, make any investment, incur any liability including borrowable of funds and accept fresh deposits, disburse or agree to disburse any payment whether in discharge of its liabilities and obligations, without prior approval in writing from the central bank.

There were 27 public sector banks in India. Government of India owns all these banks with some public participation. Banks are commercial institutions. In this competitive market only strong institution can survive. In spite of having so many banks only SBI has global reach. Government is trying to consolidate banking industry. You must have seen multiple banks in the same locality or same building and all owned by the govt. By merging banks, they will become strong. With efficient management of resources, banks can focus on upgrading services and revenues, optimum staff utilisation, cost efficiencies and reduced NPAs. Extra space and premises will be desired. Extra branches will be closed. A large bank has a lower risk profile since overall institutional risk is decreased by larger number of similar-risk, complimentary loans. Recently, SBI has closed more than 3000 branches after merger, which is big, cost saving.

Bank’s capacity will increase by merging of balance sheet. Capital and profit will increase. There will be more synergy. Mergers and amalgamations are normal business phenomena across different industries. Banking is no exception. Mergers take place between weak banks with a stronger Bank to improve it’s functioning and widen its capital base. Similarly, two equally strong Banks come together to improve their market share. In India, consolidation and mergers have taken place earlier in United Bank of India, when RBI directed a few non-viable banks in Eastern India to merge into a single entity. Similarly, New Bank of India merged with PNB, when its NPAs became large. Some private Bank like Sri Krishna Bank Ltd merged with Canara Bank. Vyasa Bank became ING Vyasa and now merged with Kotak Mahindra Bank. This is a process of consolidation. Soon Andhra Bank is going to be merged with Union Bank. RBI controls all Indian Banks in same yardsticks without differentiating between Private and Nationalised banks. You can keep money in any of the banks but also be prepared for unexpected blocks.

(Any suggestions, comments or dispute with regards to this article send us on feedback@www.afternoonvoice.com)

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Vaidehi Taman
Vaidehi Tamanhttps://authorvaidehi.com
Vaidehi Taman an Accredited Journalist from Maharashtra is bestowed with three Honourary Doctorate in Journalism. Vaidehi has been an active journalist for the past 21 years, and is also the founding editor of an English daily tabloid – Afternoon Voice, a Marathi web portal – Mumbai Manoos, and The Democracy digital video news portal is her brain child. Vaidehi has three books in her name, "Sikhism vs Sickism", "Life Beyond Complications" and "Vedanti". She is an EC Council Certified Ethical Hacker, OSCP offensive securities, Certified Security Analyst and Licensed Penetration Tester that caters to her freelance jobs.
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