OPINION | As RBI Imposes Curbs on At least 4 Cooperative Banks, Why Concerns of Over 51,000 Depositors is an Alarm Bell for All

New Delhi: With their life savings parked in one of India’s top ranked cooperative bank, over 51,000 depositors have been left in the lurch. On Tuesday, the Reserve Bank of India (RBI) suddenly put the Punjab and Maharashtra Cooperative (PMC) Bank under restrictions, limiting withdrawals from each account to just Rs 1,000. After widespread protests and uncomfortable questions over the bank, its promoters, their alleged links with the ruling BJP and their alleged lending to a leading real estate defaulter, the RBI quietly raised the withdrawal limit by 10 times to Rs 10,000 on Thursday.

This fresh limit enables six in 10 account holders of the bank to clean out their accounts. But large depositors continue to be nervous as withdrawal restrictions could be in place for months, hampering their lives. Their trust has been eroded and many are now using social media to call for mass protests.

Twitter user Manali Narkar has called for a “mass protest” on Sunday at the PMC Bank’s corporate office at Bandhup in Mumbai, housed in the Dreams mall.

As Friday’s Indian Express newspaper points out, the corporate office of the bank is housed in a mall developed by HDIL, lending to which has allegedly caused the ongoing trouble at this bank.

No official explanation has been forthcoming till now about what exactly caused the sudden crisis at PMC Bank and whether lending to HDIL indeed lead to its near collapse. Amid all the fracas, the RBI – which regulates cooperative banks along with state governments – at first did not proffer any explanation at all when it suddenly announced the withdrawal restrictions on Tuesday. Now, after increasing the withdrawal limit to Rs 10,000 per account, the central bank has said “major financial irregularities, failure of internal control and systems of the bank and wrong/underreporting of its exposures under various off-site surveillance reports to RBI that came to the Reserve Bank’s notice recently.”

In this interview, Joy Thomas, former MD of the Bank, claimed the bank had ample assets to cover liabilities and the RBI could have restricted only lending, not withdrawals by depositors.

Tens of thousands of small businesses, retired professionals and even cooperative group housing societies deposit their life savings in such cooperative banks. PMC has nearly 140 branches across several states, with maximum branches in Maharashtra. RBI data shows that till March 31 this year, 1542 urban cooperative banks were operating in the country. Of these, 46 UCBs had negative net worth (liabilities more than assets) and 26 UCBs were under directions of the RBI.

That all is not well with the cooperative banks and their oversight mechanism also becomes apparent when one examines the frequency with which such banks are put under restrictions. RBI’s own decisions during calendar 2019 show that it has put at least four cooperative banks under similar or harsher restrictions between January and September this year– Kolikata Mahila Cooperative Bank and United Cooperative Bank from West Bengal, Hindu Cooperative Bank from Punjab and now PMC Bank. The case of PMC has come in the public eye because it is a large cooperative bank with significant monies invested by depositors.

So how come things turned so alarming all of a sudden? Going by the annual report of PMC for 2018-19, which has obviously been presented only last month, everything appeared normal. The bank had a deposit base of over Rs 11,000 crore, reported a net profit nearly Rs 100 crore even though it reported that non-performing assets more than doubled between FY19 and FY 18: net NPAs stood at 2.19% at the end of March this year against 1.05% in the same month last year.

Interestingly, even the statutory auditors to this bank, Lakadwala & Co, have not flagged a single concern in their audit report for 2018-19, which was released just a few weeks back. “In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements together with the Notes thereon give the information required by the Banking Regulation Act, 1949, the Multi State Co‐operative Societies Act, 2002, the Multi State Cooperative Societies Rules, 2002, the guidelines issued by the National Bank for Agricultural and Rural Development (as applicable), guidelines issued by Reserve Bank of India and the Central Registrar of Cooperative Societies, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India.,” the auditors have said.

So the auditors had no inkling of anything being amiss, the RBI had no idea that the bank was indulging in alleged dubious lending and the state government remained oblivious to the goings on at PMC Bank. It is only pertinent then to seek a better regulatory mechanism for cooperative banks in general and perhaps the RBI should come out with a better roadmap for oversight of these banks. BJP’s Kirit Somaiya has been pushing for a gradual increase in withdrawal limit, from Rs 10,000 now to Rs 25,000 in a few weeks and then Rs 1 lakh and has promised to convince the RBI governor to increase the limit.

If and when this happens, depositors may have to remain content with the fact that the RBI has not cancelled the license of PMC Bank and there is a possibility that they will be able to get their deposits back after a few months.