The Reserve Bank of India has imposed regulatory restrictions on a cooperative bank with 137 branches across India, including limiting customer withdrawals to a total of 1,000 rupees (approximately $14) per account for six months. Police personnel had to be deployed to control angry customers at some locations.
The Reserve Bank of India (RBI) announced on Sept. 24 that it has placed Mumbai-based Punjab and Maharashtra Cooperative Bank (PMC Bank) Ltd. under regulatory restrictions. The central bank wrote:
Depositors will be allowed to withdraw a sum not exceeding ₹ 1,000 (rupees one thousand only) 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.
Punjab and Maharashtra Cooperative Bank is also prohibited from a number of activities without prior approval in writing from the RBI. These include granting or renewing any loans and advances, making investments, and incurring any liabilities including borrowing funds or accepting new deposits. After detailing a long list of prohibited activities, the RBI wrote:
The directions shall remain in force for a period of six months from the close of business of the bank on September 23, 2019.
The central bank noted, however, that the notice does not mean the cancellation of the Punjab and Maharashtra Cooperative Bank’s license. “The bank will continue to undertake banking business with restrictions till further notice/instructions,” the RBI detailed, adding that it “may consider modifications of these directions depending upon circumstances.”
Joy Thomas, Managing Director of PMC Bank, clarified in a statement that the bank has been put under regulatory restrictions because of irregularities disclosed to the central bank. “All efforts are being made to remove the restrictions by rectifying the irregularities,” The Hindu conveyed. “As the M.D. of the Bank, I take the responsibility and assure all the depositors that these irregularities will be rectified before the expiry of six months,” Thomas was quoted as saying.
PMC Bank currently has 137 branches across multiple states in India, The Hindu detailed, adding that they are located in Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh and Madhya Pradesh. At the end of March, the bank had deposits and advances aggregating ₹11,617 crore (~1.63 billion) and ₹8,383 crore (~1.18 billion), respectively, the news outlet elaborated.
The central bank’s action has led to protest by customers outside the bank’s main branch in Mumbai and various other branches, local media reported. “Angry and dejected customers, both young and old, protested across various branches” of PMC Bank, the publication wrote. A reporter spoke to several customers waiting for answers at their bank, who said they were “anxious about the fate of their savings,” having “parked their lifetime savings in the bank as it offered higher fixed deposit rates than mainstream banks, and its customer service was good.” The news outlet continued:
At some locations, police personnel had to be deployed to control angry customers who had either queued up at the bank’s onsite ATMs to withdraw money or demanded to know the fate of their deposits. Cops waved the RBI circular at the customers, but they were in no mood to listen or disperse.
Customers turning up to the bank told the publication that they are worried about the fixed deposits they had placed with the bank, as interest on these deposits was a key source of income for some.
Other customers were worried about the fate of their electronic clearing service (ECS) transactions and post-dated checks they had issued towards monthly installments for home, auto and vehicle loans. Some “feared they may be classified as loan defaulters, with lenders taking recovery action due to the non-execution of the ECS mandates or bouncing of post-dated PMC Bank cheques,” the publication added. One family told the news outlet that they hold about ₹22 lakh (~$30,962) with the bank, stating that “The management and RBI officials should have reached out to assuage customers’ concerns.”
RBI’s Powers and Other Banking Restrictions
According to the RBI, “The directions are imposed in exercise of powers vested in the Reserve Bank under Sub-section (1) of Section 35 A of the Banking Regulation Act, 1949 read with Section 56 of the said Act.” Section 35(A) of the Banking Regulation Act says that the RBI can issue the restriction on entities “to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or to secure the proper management of any banking company generally,” The Hindu Business Line detailed.
This is not the first time the central bank has put this kind of restriction on a cooperative bank. In June, the RBI issued a similar order to Shri Anand Co-operative Bank Ltd., also limiting withdrawal amounts to 1,000 rupees for six months.
Historically the RBI has been known to raise the limit amount at times. For example, in August, the central bank modified its restrictions on Adoor Co-operative Urban Bank Ltd., originally placed in November last year, which limited withdrawals to 2,000 rupees per account. The RBI stated that it had reviewed the financial position of the bank and considered it necessary in public interest to allow withdrawals of up to 25,000 rupees per account, with other restrictions unchanged.
Deepak Shenoy, the founder of Capitalmind, believes the latest RBI order could last “a long time.” He cited another bank, the Rupee Cooperative bank, which received a similar 1,000 rupee withdrawal restriction order in February 2013, and is still not clear of RBI’s restrictions even after the central bank amended its order three years later to allow withdrawals of 20,000 rupees per account. “The PMC Bank mess can last a long time. Even a change in the 1000 rs. withdrawal limit can be far away,” he tweeted, emphasizing:
I would suggest that please do not keep your money in cooperative banks. RBI’s total lack of transparency and slow resolution means there is little hope of getting your money back if things go wrong.
“As a deposit holder, you have a right to go to court against the bank – and you should, Shenoy continued. “However, the situation will take years to resolve. Unless RBI acts fast, confidence in coop banks is going to fall. RBI has not acted fast in the past.”
The central bank has also placed banking restrictions on all regulated financial institutions, prohibiting them from providing services to crypto businesses such as exchanges. Banks subsequently closed accounts of crypto exchanges forcing some of them to shut down. Following the ban, a number of industry stakeholders filed writ petitions, challenging the RBI restriction at the country’s supreme court which is scheduled to resume hearing the case today.
What do you think of the RBI’s restrictions on PMC Bank? Do you think cryptocurrency will help the situation? Let us know in the comments section below.
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