Rs 2,500-cr loan to HDIL biggest reason for PMC Bank fallout

RBI's move shows the central bank felt loan was a complete loss

Wondering what caused the crisis at Punjab and Maharashtra Co-operative Bank (PMC)? It’s the loan given by PMC Bank worth Rs 2,500 crore to now-bankrupt real estate firm Housing Development and Infrastructure Limited (HDIL), according to media reports.

Reports suggest that Reserve Bank of India (RBI) put a regulatory restriction on the PMC Bank after probe suggested that loans offered to the real estate developer were not reported as bad loans despite the developer's financial stress.

The RBI order that came as a shock to the many customers the bank has across six states where it is operational. The bank has over Rs 11,000 crore in deposits from its customers across 137 branches.

According to a report in Mumbai Mirror, the bank did not classify the loan to HDIL as a non performing asset (NPA) despite the firm's default on repayments.

Eventually, RBI took stock of the situation and termed the loan as "complete loss", the report mentions.

The daily quoted a source stating RBI's restrictions on PMC Bank shows the central bank felt the loan was a complete loss.

Had the apex bank not felt so, it would have asked PMC Bank to make provision for 10% of the total loan, the source added.

The co-operative bank had posted a net profit of Rs 99.69 crore in FY19 as against Rs 100.90 crore reported in a year-ago period, registering a marginal decline of 1.20%.

However, the PMC Bank's total income rose by 10.89% to Rs 1,297.98 crore versus Rs 1,170.49 crore in the previous year.

While the total advances of the bank increased 12.86% year-on-year (y-o-y) to Rs 8,383.33 crore, total deposits climbed 16.89% to Rs 11,617.34 crore during the financial year ended March 31, 2019.

PMC Bank's Managing Director said that RBI's restrictions came after divergences in NPAs but maintained that the action taken by the apex bank was too harsh.

He also said that the depositors' money was safe with the bank and they would come out of the situation soon to repay the customers.