RBI clampdown on PMC Bank: Central bank's action will have cascading effect on other co-op banks, erode customer confidence

FIRSTPOST
SEPTEMBER 25, 2019
DINESH UNNIKRISHNAN

The sad part is that the RBI hardly gave any warning to the customer what is coming PMC Bank has public deposits worth Rs 11,600 crore and close to 140 branches The cooperative bank has also been barred from taking fresh liabilities and issuing loans without the RBI permission If one goes by past evidence, the Reserve Bank of India (RBI)’s clampdown against Punjab and Maharashtra Co-operative (PMC) Bank under Section 35A of Banking Act citing irregularities would culminate in a forced merger with some stronger bank. That is unless PMC manages a miraculous recovery in the given time rectifying alleged irregularities and improving financials. The imposition of Section 35 A for a period of six months is to make sure that there is no panic run on the bank post the regulatory action.

The sad part is that the RBI hardly gave any warning to the customer what is coming. PMC Bank has public deposits worth Rs 11,600 crore and close to 140 branches; this money will be safe in either case but till a resolution happens, customers will be constrained to use their own money in the bank.

Cash withdrawals have been capped at Rs 1,000 for the six-month period means those who have significant deposits in the PMC Bank will be in a tough spot. In case of emergencies, such customers will find it difficult to get their money back when they need it. The deposit insurance scheme guarantees just Rs 1 lakh to the depositor in the event of a bank collapse.

PMC Bank, which is a multi-state co-operative bank with operation in at least six states, has also been barred from taking fresh liabilities and issuing loans without the RBI permission. In effect, the RBI has ordered freezing the operations of PMC Bank leaving customers in considerable uncertainty. But, this isn’t the first time cooperative banks are coming under regulatory action.

Hundreds of cooperative banks have been closed down or were forced to merge in the previous years on account of financial irregularities and dubious style of functioning.

Cooperative banks aren’t big banks when seen against commercial banks but, over years, they have gained size and reach in rural areas, where the density of larger banks is less. These banks are also highly influenced by local politicians and state governments and RBI’s monitoring is light in relation with commercial banks. Many times, the RBI action comes at the final hour without much warning to the depositors like in the case of PMC Bank.

According to data from NABARD, there are 33 state cooperative banks, 363 district central cooperative banks as on 31 March 2018. The number of primary agricultural credit societies (PACS), the smaller ones, as on 31 March 2017, stood at 95,595, as per the latest data available. Since 2010, the RBI and NABARD had conducted a review of the cooperative banks that resulted in the cancellation of licences of many loss-making banks. Since then, the performance of the remaining lot has improved. But, these entities have clearly not come out of danger zone.

According to data from NABARD, state cooperative banks across the country have deposits to the tune of Rs 1,23,534 crore as on 31 March 2018 as against Rs 1,22,039 crore as on 31 March 2017. These lenders have a total loan outstanding of Rs 1,31,934 crore as on 31 March 2018 with an impressive loan recovery percentage almost 95 percent. Of the total, 32 state cooperative banks posted total profit of Rs 1,037 crore during 2017-18 as against Rs 970 crore by 31 state cooperative banks during 2017-18.

Their non-performing assets (NPAs) stood at 4.72 percent of their total loans and advances outstanding as on 31 March 2018 as compared to 4.10 percent as on 31 March 2017. These banks' accumulated losses decreased to Rs 605 crore as on 31 March 2017 from Rs 527 crore as on 31 March 2018.

Are cooperative banks important? Without doubt, these institutions have played a critical role in offering banking services to the low-income groups, mainly farmers, especially given that the banking correspondents (BCs) model hasn't worked well in the hinterland. Banking correspondents are agents of banks who operate in areas where there are no bank branches.

Comments

Post a Comment

Popular posts from this blog

ED tracks Swiss Bank A/Cs of Agusta scamster

The Poineer February 10,2019 Rakesh K Singh The Enforcement Directorate (ED) has tracked a dozen Swiss bank accounts in the name of Rajiv Saxena, who is key accused in the Rs 3,600 crore AgustaWestland VVIP chopper scam. The ED has also found out accounts held by  his family members and associates where the kickbacks in the now scrapped deal were allegedly parked. Two bank accounts are in the name of Rajiv Saxena’s  associates Pankaj Jain and Sumita Jain who are also the authorised signatories. The  third is in the name of another associate Ajit Singh Bubber, but Rajiv and his family members are authorised signatories. The remaining nine accounts are largely owned and operated by Rajiv, his family members and associates. Rajiv Saxena was deported by the UAE authorities on January 30 and the ED formally arrested him the next day and a court later granted his remand to the agency. He is currently undergoing custodial interrogation by the ED. The agency had in 2017 arrested his
Read more

J&K Cricket Board Scam: Chargesheet Filed Against Farooq Abdullah, 3 Others By CBI

OUTLOOK July 16, 2018 The agency has levelled charges of criminal conspiracy and criminal breach of trust under the Ranbir Penal Code against Abdullah and three others. The CBI on Monday filed a chargesheet against former Jammu and Kashmir chief minister Farooq Abdullah and three others in a special court in Srinagar in connection with alleged irregularities and misappropriation of funds in the Jammu and Kashmir Cricket Association. After the fall of the Peoples Democratic Party (PDP) and the BJP government, this is the biggest development that has taken place in the state. The National Conference has not reacted to the chargesheet so far. The agency has levelled charges of criminal conspiracy and criminal breach of trust under the Ranbir Penal Code against Abdullah, the then president of JKCA, Md Saleem Khan - the then general secretary, Ahsan Ahmad Mirza - the then treasuer and Bashir Ahmad Misgar, an executive in the J&K Bank. The BCCI gave Rs 112 crore t
Read more

As financial insecurity rises in urban India, so does investment in insurance

Image
Scroll.in March 13, 2020 Urban Indians are becoming less confident about their financial security. Up to 58% of them fret over financial independence post retirement, which is a 4% increase from last year. An equal share of urban Indians worry about meeting their daily medical expenses and sustaining their current lifestyle once they stop working. The findings are part of a survey published by Delhi-based Max Life Insurance in association with London-based consultancy Kantar. The firms surveyed 7,014 respondents in 25 cities, including six metros, nine tier-1 cities, and 10 tier-2 cities, between December 2019 and January 2020. Source: Max Life Insurance via Quartz The trends Source: Max Life Insurance via Quartz Source: Max Life Insurance via Quartz Source: Max Life Insurance via Quartz A significant share of urban Indians also say their families will have no financial support in the event of the breadwinner’s death. In such a scenario, around 57% believe the family sav
Read more