Last September, the Reserve Bank of India (RBI) imposed restrictions on Punjab and Maharashtra Cooperative Bank (PMC) for six months after finding financial irregularities such as concealing bad loans and reckless lending.
RBI limited withdrawals by the depositors of the co-operative bank and forbid it from disbursing loans or making investments without its permission. Nearly 78 percent of PMC’s depositors have got their money back. The ones who haven’t are mostly high-value depositors.
Two such depositors happen to be RBI employee cooperative credit societies--The Reserve Bank Officers' Cooperative Credit Society Ltd (RBOCCS) and Reserve Bank Staff & Officers Co. Op. Credit Society Ltd. Together, they have deposited nearly Rs 190 crore in PMC Bank.
To save PMC depositors, the RBI officers and employees unions are now pressing for resolving the PMC mess quickly after the central bank extended the above curbs in March for another three months until June 22, according to two people familiar with the matter.
The RBI employee unions have suggested to the RBI brass: let PMC be taken over by another lender. Among the potential suitors they suggested are state-run Bank of India (BoI), Saraswat Cooperative Bank and a few private banks.
“One cooperative has Rs104 crore and the other Rs 85 crore in PMC,” said one person quoted above. “We parked this money in PMC as it was a well-managed bank at that point and interest rates were attractive,” the person said.
These are only suggestions and there are no formal proposals from either side yet. An RBI spokesperson said he isn’t aware about any such proposals.
“According to our assessment, we have suggested some names suited to take over PMC Bank. BoI is one of them because it is Mumbai-based and relatively better positioned than other banks,” said another person who was part of the meeting.
According to this person, the RBI is warm to the idea of PMC Bank’s merger with a nationalised bank but is of the view that both sides will have to come with a formal proposal first to consider a merger.
Both persons Moneycontrol spoke to did not want to be named.
RBI is keen to find a resolution to resurrect PMC, which is one of the biggest cooperative banks in India. It extended the restrictions in banks as it is working on a plan to revive the bank.
A quick resolution, unlike in the case of Yes Bank might not be easy because of the nature of fraud in PMC and regulatory issues (the central bank doesn’t have full power over cooperative banks, unlike commercial banks). The RBI could also be concerned that if PMC is rescued, depositors of other failed cooperative banks too will approach the regulator for a similar rescue.
As on December, 2019, PMC Bank has Rs10,629 crore deposits and an estimated loss of Rs892 crore as on March, 2019.
“It must be noted that unlike in the case of commercial banks, the Reserve Bank has no powers to draw up an enforceable scheme of reconstruction of a cooperative bank. Nevertheless, in the interest of the depositors and the stability of the cooperative banking sector, the Reserve Bank of India, in consultation with various stakeholders and authorities, is trying to work out a scheme for revival of the bank,” the RBI had said.
The Yes Bank Story
Compared with the uncertainty in the PMC Bank case, the RBI and the government moved swiftly in changing the ownership of Yes Bank, which collapsed on account of years of careless lending and alleged financial irregularities perpetrated by founder promoter Rana Kapoor. The government nudged State Bank of India, India’s largest bank, to head the rescue process. Besides SBI, nearly all major private banks in the country participated in the bail-out pooling in money and promising continued support. Yes Bank is back to normal operations now.
But the pain of a section of PMC depositors continues unabated. Withdrawals are restricted at Rs 1 lakh. But according to PMC depositors any withdrawal above Rs50,000 is discouraged by the bank staff unless backed with written requests stating a valid reason.
Cooperative banks have long suffered from the perils of dual regulation. Regulation of urban cooperative banks is split between the RBI and the Registrar of Co-operative Societies while that of smaller co-operative banks is divided between National Bank for Agriculture and Rural Development (Nabard) and RCS. RCS reports to the central government. After the PMC crisis, the RBI came with new rules under which it will have stronger regulatory control over urban cooperative banks.
Until now, the dual regulation has created lack of accountability in the monitoring of these banks paving way for large scale mismanagement and involvement of local politicians. Even the RBI (which primarily looks at urban cooperative banks) and the Nabard (the agency that works with rural cooperative banks) typically do not even have updated financial data of these banks.
According to the available data on the RBI site, India has 1,551 urban co-operative banks (UCBs) which managed Rs 4.5 lakh crore deposits at end-March, 2018. In rural, there are three types of cooperative banks--primary credit co-operative banks, district-level cooperative banks and state-level cooperative banks. As on end-March, 2017, there were about 33 state co-operative banks with Rs 1.2 lakh crore deposits, 370 district central co-operative banks (Rs 3.3 lakh crore deposits) and 95,595 Primary Agricultural Credit Societies (Rs 1.15 lakh crore deposits).