PMC Bank failure: A response

PMC Bank failure

M G Warrier's response                 

October 7, 2019

Save cooperative banks 

 This refers to the report "PMC case: Co-op banks urge RBI to recover bad loans" (October 7). Thanks to the overconfidence of those who were at the helm of PMC Bank, headquartered in the country's financial capital, who assumed eternal immunity from legal provisions, many inadequacies in the system have surfaced.
Since 1966 when some provisions of the Banking Regulation Act, 1949 were made applicable to cooperative societies, many of the cooperatives which used 'bank' in their name legally and illegally are being owned and operated by certain vested interests for mobilisation of deposits and diverting the resources mobilized for purposes of their choice. Result, public trust in the banking sector is shaking.
The depositor of the PMC Bank and common man in his capacity as a saver who deposits money in any bank in India may be concerned with the following issues:
·       There is a Deposit Insurance and Credit Guarantee Corporation providing an insurance cover of upto Rs one lakh per account-holder. It didn’t provide any support when account-holders who had balances in current and savings accounts with PMC Bank were told that their deposits were frozen for six months and the maximum amount that can be withdrawn during the next six months was Rs1000/-
·       What is the role the Registrar of Cooperative Societies as the authority having control over administrative matters of the bank will play in such situations?
·       To what extent the stipulations and monitoring of maintenance of cash reserves (under RBI Act or BR Act) and Statutory   Liquidity Reserves (under B R Act) will safeguard the interests of stakeholders in such situations?
One feels uncomfortable, when none of the safeguards and safety-valves work in an emergency. No, we cannot just blame the judiciary, statutory bodies or institutions for the chaos and forget this till next calamity happens. Somewhere a beginning has to be made. Let it be from PMC Bank experience.
PMC Bank has over 10,000 crore collected as deposits from thousands of depositors spread in 6 or 7 states. That calls for GOI intervention. GOI, RBI and representatives of some state governments should sit together and analyze what went wrong in this case. If necessary, new laws should be enacted. If amendments will take care, they should be carried out. The purpose should be to make adequate recoveries to pay the depositors in full. After that, let the PMC Bank start afresh, if it wants to continue in business.

M G Warrier, Mumbai


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