With so many co-operative banks facing problems, it is high time that RBI as a regulatory body should have more stringent measures and monitor closely to have better control over banks. Failures such as PMC Bank’s must be pre-empted to retain public faith in the system.
It has been a nightmare of a week for thousands of customers of the Punjab and Maharashtra Co-operative Bank (PMC), who were told by the Reserve Bank of India that no more than Rs 40,000 could be withdrawn from their accounts. The 35-year-old lender may not be the first but is certainly one of the largest urban co-operative banks facing this clampdown. The resultant distress is also more widespread as the bank, with a large footprint in Maharashtra, is also present in Delhi, Goa, Gujarat, and Karnataka. Strikingly there was no ostensible sign of distress to trigger the bank’s virtual collapse, following the regulator’s intervention.
Things were going swimmingly as per its latest annual report, with deposits growing nearly 17% year-on-year to Rs 11,617 crore by March 2019, with long-tenure savings accounting for the largest chunk. Profits, in a tough year for banks, were flat, and while bad loans more than doubled, their proportion was far lower at PMC than at most public sector banks. Given this backdrop, the bank’s depositors, who ironically include the RBI’s own employees’ are understandably perturbed about the fate of their savings. The RBI realised depositors woes after financial irregularities, failure of internal control and systems of the bank and under-reporting of exposures’ came to its notice and raised the withdrawal limit to Rs 40,000 per account, stressing the importance of allowing a withdrawal of about Rs.100000 with immediate effect.
Questions have been raised on the bank’s large exposure to Housing Development and Infrastructure Limited (HDIL) which is itself undergoing insolvency proceedings. The bank’s chairman had served on the board of the HDIL for ten years between two long stints at the bank, and any irregularities in loans to the firm would be an indictment of the quality of oversight on banks. That the RBI shares regulatory responsibilities over such banks with States’ Registrar of Co-operative Societies further mires the problem. With over 1,500 urban co-operative banks operating in the country, and a few of them already under RBI-imposed restrictions, a new road map is essential for their future course.
As a watchdog RBI should have more control and avoid such a situation in co operative banks in future. After all, life long savings and hard earned money is deposited in banks to earn some interest for a peaceful living. Now the depositors is facing financial crunch as their money deposited in PMC Bank is not allowed to be withdrawn. A timely measure can provide a solace for its 17 lakhs client base. Every time a crisis such as PMC surfaces, there’s some sympathy over the plight of depositors, and debates around the need to regulate cooperative banks better. But then the world moves on, leaving hapless depositors to pick up the pieces of their lives, and denting people’s faith in the banking system ever so slightly.
The regulatory inaction leaves room for the next crisis at another bank somewhere else. Why have institutions that are called banks but are not entirely within. It is indeed testing time for PMC Bank depositors till the time a wise solution is provided to the pathetic depositors and there should not be any time lag in settling the issue in the most amicable way without wasting time and find an end to their miseries.
(The views expressed by the author in the article are his/her own.)
