With no funds, PMC Bank depositors survive on loans, charity due to withdrawal limits after cooperative bank fraud

Liquidity risks have increased for non-bank financial corporations.

Strong points

  • Withdrawal limit for PMC depositors is now 100,000 rupees per person
  • Cooperative banks are less regulated than commercial banks
  • Senior PMC officials and owners of a real estate company under arrest

In February, Kishan Lal, 82, asked India’s finance minister for help, saying in a Twitter message that he was ready to donate his kidney and eyes if anyone could help find funds to treat her daughter, who suffered from a brain tumor. The Lals had enough savings to weather the medical crisis – over Rs 25 lakh ($ 33,450) at the Punjab & Maharashtra Co-operative (PMC) Bank

But withdrawals were capped at Rs 50,000 on each account at the time, as authorities were investigating fraud at PMC. The withdrawal limit is now 100,000 rupees per depositor. “I just borrowed money wherever I could, I had to save my daughter,” Mr Lal said.

“If I had had access to my own money, I wouldn’t have been ashamed.”

Senior PMC officials and the owners of a real estate company that received the bulk of the loans have been arrested. The withdrawal cap has left many over 900,000 PMC depositors in dire straits.

Some say they struggle to get loans or pay their children’s school fees, while others say they depend on friends for their groceries.

The situation at PMC has also amplified concerns about the health of tens of thousands of Indian cooperative banks, which often serve communities in the interior of rural areas and have assets worth around $ 220 billion, or about 11% of the total assets of the Indian banking sector.

These banks, many of which are tiny, are subject to less regulation than commercial banks and currently more than 20 of them face RBI lending or withdrawal restrictions due to financial irregularities. . The coronavirus has hit the banking sector as a whole hard, sparking concerns that bad loans have skyrocketed as household and business debt rises.

Liquidity risks have increased for nonbank financial corporations and the public banking system needs to be recapitalized.

But some analysts fear the pandemic may have a more pronounced effect on fragile cooperative banks. Emkay Global brokerage

Asked about the delay in resolving PMC’s issues, Jai Bhagwan Bhoria, an administrator appointed by the RBI to revive the bank, told Reuters: “The turnaround is an ongoing process and it takes time to materialize due to legal procedures and obstacles encountered “.

Tale of two lenders

The PMC crisis has also sparked battles in the courts.

In one, Sandeep Bhalla, whose parents blocked almost Rs 100 lakh in PMC, told Delhi High Court that PMC’s depositors were “discriminated against” compared to those of the commercial lender Yes Bank. In March, the RBI imposed a ceiling of Rs 50,000 on withdrawals from Yes Bank, then India’s fifth largest bank in terms of assets, after its finances deteriorated. But less than 24 hours later, the finance minister announced that India’s main state-owned bank, SBI, would inject funds into Yes Bank and the withdrawal restrictions were subsequently lifted. The finance ministry told the court that the government did not inject any funds into Yes Bank but it was investors and the SBI that came to its rescue, court documents show. SBI is 57 percent owned by the government.

The judge was not convinced.

Noting that PMC’s depositors were in a “dire state,” the court said the RBI and the Department of Finance had played a critical role in the Yes Bank bailout and called on them both to “dig deeper into the matter. ‘aspect “of why PMC applicants were treated differently. The RBI told the court that the two lenders were “fundamentally different”, including the different regulations governing them.

He also said that with PMC’s “really precarious finances”, no investor was willing to bail him out. The Finance Ministry said the RBI rescued Yes Bank because it deemed it necessary for the benefit of the public and depositors, but the central bank had not offered any such bailout for PMC. The court is then due to hear the case in mid-September, just before the first anniversary of the PMC collapse.

When asked about further comments, the Finance Department referred Reuters’ questions to the RBI, which did not respond.

“Get Well Soon RBI”

Established in 1984, PMC is a regional lender with 137 branches in six states and last year had deposits of $ 1.5 billion.

Yes Bank is much larger with over 1000 branches across India. Many depositors said they were unaware of the different regulatory structures of banks and believed PMC to be like any other commercial lender. asked Pooja Chaudhary, 26, who said she had to fight for hours last month to get her father’s bodyguard after a hospital refused to release him until she had paid his medical bills.

“My father is dead and I couldn’t even cry,” said Chaudhary, who said his savings of Rs 15 lakh were stuck in PMC. Earlier this month, dozens of PMC depositors staged a protest in Mumbai and shouted slogans against the central bank: “Get over RBI soon.” Thank you for doing your job so well that we lost all of our savings, ”one poster read. On Facebook, applicants regularly post videos and photos to amplify their request for help.

Every day, hundreds of messages are shared on a group of Telegram messaging apps of around 4,000 members where applicants discuss next steps, or just vent. Kishan Lal and his daughter Bony say they remain at the mercy of loans.

Mr Lal said he developed a prostate problem but was not treating it and was skipping his blood pressure medication because savings remain stuck at PMC.

Bony, 43, is devastated as she battles her own illnesses.

“It’s our hard-earned money paid for in taxes,” she said, “and we literally have to beg for it.”

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