RBI restrictions on PMC Bank

PMC Bank depositors panic as RBI places curbs - 

M G Warrier
PMC Bank shocker

M G Warrier   

September 25, 2019
PMC Bank shocker
This refers to the report “PMC Bank depositors panic as RBI places curbs” (Business Line, September 25). Obviously, the action initiated by RBI is with good intentions and aimed at protecting the interests of bank depositors including the PMC Bank clientele. One objective of imposing a ceiling on withdrawal from deposit account with the bank is to guard against panic withdrawals which may cause a run on the bank. Fair enough.
More transparency in such measures is needed, as today, the public trust in the financial system is not very high. The inadvertent efforts to destabilize the institutional system including those responsible for regulation and supervision have also contributed to the present unenviable situation.
Considering the multi-state presence and large clientele with a deposit base of over Rs11,000 crore, RBI need to quickly review the withdrawal limit of Rs1000 fixed for 6 months in the case of PMC Bank. More important, the message that the present action is in the interest of the stakeholders, including depositors, of the bank has to be publicized.
A related issue is, for the savers, the statutory provisions stipulating capital and reserves requirements including maintenance of liquid assets are not found helpful in such situations. In this context, just as RBI has got its Economic Capital Framework (ECF) studied by an expert group chaired by former RBI governor Dr Bimal Jalan, GOI and RBI may consider appointing a panel of experts to study the capital and reserves framework of all banks including cooperative banks. The expert panel may also make suggestions on maintaining a national deposits protection fund under the aegis of DICGC to provide immediate relief to depositors in situations like this. A wholesale review covering adequacy of capital, liquid assets and reserves and realignment of their components may prove beneficial to the economy, as the exercise may release liquidity into the market.
M G Warrier, Mumbai


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