Surging Defaults and Capped Withdrawals

The total deposits of the Punjab and Maharashtra Co-operative (PMC) Bank stand at around Rs. 110 billion and the total loan book is around Rs. 83 billion, making it among the top 10 co-operative banks of India.

“PMC Bank has been put under regulatory restriction under Section 35A of the Banking Regulation Act for a period of six months due to irregularities disclosed to RBI,” the bank’s then MD, Mr. Joy Thomas, said in a message to depositors.

This comes from the surge in defaults over the past six months, amid tight economic conditions. This has made it difficult for the bank to meet its commitments.

To bring the depositors out of this muddle, RBI has increased the withdrawal limit from Rs. 1,000 to Rs. 10,000.  “Other terms & conditions of the said Directive shall remain unchanged. With the above relaxation, more than 60% of the depositors of the Bank will be able to withdraw their entire account balance,” RBI said in a statement.

The extent to which this multistate co-operative bank’s downfall will contribute to the impending crisis would be dreadful to watch.