EXPLAINED: WHY PMC BANK CUSTOMERS ARE IN TROUBLE

The Reserve Bank of India (RBI) on Tuesday restrained customers of Punjab & Maharashtra Co-operative Bank (PMC) from withdrawing more than ~1,000 over the next six months, triggering panic among customers

PMC Bank’s problem

The restrictions on PMC Bank were put after RBI found several violations of banking rules and under-reporting of bad loans

The bank is now restrained from giving out new loans. It presently has deposits of over ₹11,000 crore

What are customers’ options?

Depositors can take the bank to court for their funds, according to some experts, who warned that the process might actually take a long time and be expensive

The deposits are also insured up to ₹1 lakh by the Deposit Insurance and Credit Guarantee Corporation, though it is not clear when that clause can be invoked

What happens to deposits?

PMC Bank moved to assure customers that deposits will be safe, but people are unsure of what happens after the six-month embargo runs out

In similar cases in the past, restrictions have lasted several years as the banks struggled to fix their balance sheets

Cautionary tale

According to experts, the PMC Bank episode is a reminder of the fragility of India’s banking system—especially smaller co-operative banks that often have weak corporate governance mechanism and adherence to rules Customers should look at the health of a bank, its network and its record before depositing—not just the deposit interest rates which are often high to attract new business