RBI FREEZE ON CITY BANK
Central bank’s intervention adds to buzz about under-reporting of NPAs and exposure to real estate deal that went sour
An RBI-appointee has taken over as the administrator of the Punjab and Maharashtra Co-op Bank, barred it from carrying out routine business transactions for the next six months and put curbs on depositors who would only be able to withdraw Rs 1,000 from their accounts. The RBI intervention heightened the sense of alarm among the depositors and triggered major chaos outside the PMC branches in Mumbai, leading to deployment of police force.
The magnitude of the problem can be gauged from the fact that the city-based bank has around Rs 11,000 crore of public deposits.
It is understood that many regulatory lapses, including massive under-reporting of NPAs, brought the PMC bank under RBI lens. A statement put out by PMC Bank managing director Joy Thomas admitted as much: He claims the regulatory restrictions were clamped after the bank brought certain irregularities to the notice of the central bank.
The information was conveyed to the RBI last week, three days before the scheduled RBI annual audit on Monday.
Unconfirmed reports said the bank had real estate exposure in terms of huge loans advanced to a major developer for construction of a shopping mall and an international school in the central suburbs.
He also held out an assurance that these irregularities
will be rectified before the expiry of six months. However, thousands of distressed customers of PMC Bank found themselves staring at the bottom of the barrel in festive season. It was also not clear whether the Rs 1,000 withdrawal restriction is per day or just Rs 1,000 for now, until the RBI says otherwise.
What added to the sense of disquiet was RBI administrator’s attempt to reassure customers by suggesting that in the case of a total bank failure, their accounts were insured for up to Rs 1 lakh. This added to the reining confusion as there are thousands of customers with their life’s savings stashed in the bank; they stand to lose many lakhs more in case the PMB bank indeed goes bust.
What most customers found intriguing was that the recent financial results of the bank do not indicate anything to the contrary. In the year ending March 31, 2019, it made a net profit of Rs 99.69 crore and had net-NPAs of 2.19%, which had doubled from 1.05% in the previous financial year. Gross NPAs, however, are at 3.76%. The MD is insistent that the NPAs are duly insulate by the assets.