The Reserve Bank Of India (RBI) on Tuesday restricted the Punjab and Maharashtra Co-operative Bank (PMC Bank) from making fresh investments, accepting deposits, and sanctioning or renewing new loans among other sanctions without its approval.
Further, the RBI has also prohibited depositors from withdrawing more than ₹1,000 of their total deposits. This has caused account holders of the bank of the bank to panic, with reported protests outside the bank's central office in Bhandup (Mumbai), and depositors wanting to withdraw cash from the bank being turned away.
BOOM tells you all you need to know about these directives.
What restrictions has the RBI imposed on PMC Bank? The RBI has but the bank under "Directions", under the sections 35(A) and section 56 of the Banking Regulation Act, 1949. While the former authorises the RBI to put restrictions on banks and regulate their management in public interest or in the interest of the health of the bank, section 56 deals with co-operative societies.
The RBI has imposed the following restrictions on the bank:
Depositors can only withdraw a sum up to ₹1,000 from every savings account or current account. Without the written approval of the RBI, PMC Bank cannot grant or renew loans. The bank also cannot accept fresh deposits from its customers, make payments towards discharging its liabilities, or sell or dispose of assets These directions have been put in place for six months starting September 23, 2019.
The RBI's official communication can be read here .
Why have the restrictions been imposed? The RBI's communication makes no mention of the reasons why the restrictions have been imposed. The managing director of the bank - Joy Thomas - has said that it is due to irregularities disclosed by the bank to the RBI.
While the specifics of the irregularities was not stated by the press release of the RBI or through PMC Bank, Livemint said that the irregularities were due to under-reporting of the bank's non-performing assets. It says that the actual non-performing assets of the bank are much higher than the reported gross figure of 3.76%. The restrictions by the RBI have been put in place to prevent a run on the bank.
The bank gave the following intimation to its customers, an excerpt of which is:
"I, Mr. Joy Thomas, M.D., regret to inform you that your PMC Bank has been put under regulatory restriction under Section 35A of B.R. Act by RBI for a period of 6 months due to irregularities disclosed to RBI. 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 6 months. All efforts are made to remove the restrictions by rectifying the irregularities."
Thomas did not answer calls by BOOM when we attempted to contact him for more details.
Does this mean that PMC Bank can no longer operate as a bank? The RBI has categorically stated that the these directions are not to be construed as a cancellation of PMC Bank's banking license. PMC Bank will continue to operate with restrictions.
The RBI has also said that it may consider to modify these restrictions based on the circumstances.
What will be the effect of these restrictions? The restrictions will affect total deposits worth almost ₹11,617 crores and operations across 137 branches, which the bank has reported in its annual report for 2018 - 2019.
T. Gogada, a PMC Bank customer, whose family has deposits above ₹7 lakhs with the bank said:
The restrictions have made it harder for us to finance an upcoming house purchase. During the day, the police intervened outside the bank's branch at Vikhroli East (Mumbai). The bank staff also could not assure funds towards emergency expenses such as medical expenses or planned weddings upon repeated questioning by customers present
Depositors took to social media to express their frustration on not being able to access their life savings.
Have such restrictions been imposed on banks before? The imposition of such restrictions are not uncommon.
This year, the RBI has placed restrictions under the same provisions on Osmanabad based-Vasantdada Nagari Shahakari Bank, Nashik-based Vithalrao Vikhe Patil Co-operative Bank and Karad Janta Sahakari Bank.
In May, similar restrictions on Goa-based Madgaum Urban Co-operative Bank saw withdrawal limits on account holders to the tune of only ₹5,000.
On September 11 this year, the RBI also withdrew similar restrictions on Lucknow-based Indian Mercantile Co-operative Bank, which were imposed in June 2014. This can be read here .
Editor's note: Gogada is a Mumbai-based journalist and is a video producer at BOOM.