PMCB jit­ter may trig­ger 2nd round of cri­sis

The Times of India (New Delhi edition) - - Times Global - TIMES NEWS NET­WORK

Mum­bai: The trou­ble in Pun­jab and Ma­ha­rash­tra Co­op­er­a­tive Bank, one of the top five in the seg­ment, is threat­en­ing to trig­ger a sec­ond round of cri­sis of confidence in the sec­tor. Many de­pos­i­tors are play­ing it safe and choos­ing to spread their in­vest­ments and sev­eral co­op­er­a­tive so­ci­eties are re­view­ing their de­ci­sion to keep a bulk of de­posits with co­op­er­a­tive banks.

PMC Bank, whose op­er­a­tions have been frozen by the RBI, held the ac­counts of 1,754 co­op­er­a­tive credit so­ci­eties, 216 ur­ban co­op­er­a­tive banks and 15,000 co­op­er­a­tive hous­ing so­ci­eties and co­op­er­a­tive en­ti­ties. Also, PMC Bank was to play white knight to two other co­op­er­a­tives — City Co­op­er­a­tive Bank and Ma­pusa Ur­ban Co­op­er­a­tive Bank.

What is mak­ing it worse this time is so­cial me­dia which is ac­cel­er­at­ing the spread of ru­mours.

For in­stance, mes­sages con­tin­ued to be cir­cu­lated even after the RBI is­sued a clar­i­fi­ca­tion deny­ing the mes­sages. In 2009, a lead­ing pri­vate bank was able to pur­sue the ori­gin of ru­mours through for­warded text mes­sages and get the orig­i­na­tor ar­rested. Now, with in­ter­net-based so­cial me­dia, it is not pos­si­ble to trace the ori­gin.

While there have been over a dozen co­op­er­a­tive banks that were placed un­der di­rec­tions this fis­cal, PMC Bank’s case is the first in­stance of such a ma­jor fraud tak­ing place in a co­op­er­a­tive with core bank­ing and reg­u­larly in­spected by the RBI.

Cus­tomers of PMC can with­draw up to Rs 10,000 as of now and their de­posits up to Rs 1 lakh are cov­ered by de­posit in­sur­ance which will come into play at the time of res­o­lu­tion. But this will bring lit­tle re­lief to the in­sti­tu­tional in­vestors who hold de­posits of hun­dreds of in­vestors.

For those in the RBI, the cri­sis is rem­i­nis­cent of the Mad­havpura Mer­can­tile Co­op­er­a­tive Bank fraud in 2003 which re­sulted in the sec­tor go­ing through a cri­sis phase. The fraud at Mad­havpura, which was en­gi­neered by stock­bro­ker Ke­tan Parekh, had re­sulted in co­op­er­a­tive banks los­ing mar­ket share. In the sub­se­quent pe­riod many smaller lenders folded up and the num­ber of UCBs de­clined from 1,926 in endMarch 2004 to 1,770 by endMarch 2008.

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