PMC Bank

Crisis
- By Ankit Agrawal
ankitmay28@gmail.com

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COMMERCIAL BANK VS COOPERATIVE BANK

Interest rate on deposits

in Cooperative banks are
slightly higher
 Cooperative bank is governed by both banking and
cooperative legislation, as they are registered under the
Cooperative Society Act, 1965

And regulated by National Bank for Agriculture and Rural

Development (NABARD) & Reserve Bank of India (RBI).
Banking laws were made applicable to cooperative societies in
1966 through an amendment to the Banking Regulation Act,
1949.

Since then, banking related functions are regulated by the RBI

And management related functions are regulated by

respective State Governments.
In 2000, it was conferred with scheduled status
by the Reserve Bank of India (RBI).
 WHAT IS SECTION 35A OF THE BANKING
REGULATION ACT, 1949?

It vests power in the RBI to give directions to banks and can

take action,

"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".

The RBI under the act can also impose restrictions on banks
to ensure better governance and control.
 WHAT HAPPENED ON SEPTEMBER 24?

Customers of PMC Bank woke up to a shocker, when a

message from the bank revealed that it has been put
under directions by Reserve Bank of India (RBI) for six
months.

Police officers were deployed at the branches to keep

things in order.
 WHAT HAPPENED IN PMC BANK'S CASE?

• RBI has not yet given any specific reason for issuing “Direction”.

• But it is said that the regulator found irregularities in lending.

• Under reporting of non-performing assets or higher than

permitted exposure to same group accounts.

• An inspection is currently underway.

 WHAT ARE THE RESTRICTIONS CUSTOMERS?

• Customers can withdraw only up to Rs 1,000 from the bank,

irrespective of the type of accounts.

• They can renew existing term deposits on maturity.

• In case of an emergency expense like hospitalisation etc, the

RBI may grant an exception on a case-by-case basis.
 RESTRICTIONS ON BANKS?

• The bank cannot accept fresh deposits nor grant new loans
without prior approval from RBI.

• ATMs have been taken off the payment network.

• Online banking has been stopped.

 PRESENT HEALTH OF PMC BANK?

• Bank’s net profit for 2018-19 stood at Rs 99.69 crore.

• Bank’s total deposits stood at Rs 11,617 crore as of March 2019,

whereas total loans and advances stood at Rs 8,383 crore.

• Gross NPA ratio as of March 2019 stood at 3.76%.

• It employs 1,814 people as of 31 March 2019.

 WHAT IS THE FUTURE OF PMC BANK?

• After 6 months, RBI will take a call on whether to relax

some restrictions or extend the period.

• If the discrepancies found can be corrected over the course

of time, the bank's functions will be reinstated. (even before
6 months)

• However, if RBI believes that it is not in the interest of the

bank's customers to keep it running.
In such a scenario, the bank's arrangement with the
Deposit Insurance and Credit Guarantee
Corporation (DICGC) will kick in.

Under this customers will be eligible to claim up to

Rs 1 lakh of their deposits with the bank.
WHAT ARE MAIN PROBLEMS WITH COOPERATIVE BANKS?

• Dual control- This leads to lesser supervision by RBI like

on other banks.

• Lot of political influence- as it is also regulated by state

governments.
 WHAT SHOULD BE DONE?

• Greater financial literacy among people about cooperative banks.

• Better supervision by RBI.

• RBI stepping in an earlier moment.

• State government cooperating with the RBI.

PMC Bank
Crisis
- By Ankit Agrawal