On Tuesday, September 24 depositors of PMC Bank in Goa were in a state of panic when the RBI imposed embargo on the bank and limited withdrawals to Rs 1,000 per account holder. The RBI also restricted the bank from lending or investment activities.
Depositors of PMC bank had no inkling of any trouble within the bank. The RBI directions were issued on the close of banking hours of Monday and it caught account holders unaware. Several account holders had operated their account even as late as September 23 and at the branch the employees gave no hint of the arriving crisis. Account holders of PMC Bank in the state are primarily from the middle and working class. They are salaried individuals, shopkeepers, traders, drivers, vendors, etc.
They favoured the bank because of its good service, late timings, branches remaining open on Sunday and helpful attitude of the staff. The cooperative is also said to be supportive in giving loans to small account holders many of them who are migrants and do not have proper address. But akin to their counterparts in other states like Maharashtra, Delhi, Karnataka, Gujarat, Andhra Pradesh where the bank has operations, Goan customers of PMC Bank are now apprehensive about the future. They are concerned over the safety of their money put in savings accounts, fixed deposits or recurring deposits.
PMC Bank’s stumble is even more worrisome because several local urban cooperative banks and cooperative societies have placed their money in the bank as it offered higher interest. The bank aggressively sought deposits from cooperative societies and succeeded because it gave 0.50 per cent higher interest rate than other banks.
Evaluating the situation, VB Prabhu Verlekar, chartered accountant who previously headed the administrator committee of Goa State Cooperative Bank says, “Until now PMC Bank looked good and strong. Its audited balance sheet was perfect. The financial parameters showed adequate CRAR, net profit and under control non-performing assets (NPAs) which was as low as three per cent. The bank also paid its employees well. However what was not known is that, the bank did not make provisions for advances to a real estate company. It continued to extend loans to a bankrupt company and acted like the loan was recoverable when actually the loan should have been treated as a NPA. The concealment of NPA was not known to anybody including RBI which is surprising.”
Verlekar explains that, if PMC Bank has to make provision for the bad loan then the NPA would shoot up and the bank’s stated profit would turn into loss.
The RBI restrictions on the bank are for six months and on grounds of “major financial irregularities, failure of internal control and under-reporting of its exposures under various off-site surveillance reports.” Since administering the first dose of punishment the RBI has relaxed the restrictions.
On September 26, the withdrawal limit was raised and account holders were permitted to withdraw Rs 10,000. The apex bank said that, the easing of restrictions is to alleviate the hardships of depositors.
Meanwhile the details that led to Punjab Maharashtra Cooperation (PMC) Bank going into a state of distress are now coming out gradually. The bank revealed that it did not report the huge financial exposure to Housing Development & Infrastructure Limited (HDIL) to the Reserve Bank of India (RBI) for over six years.
Suspended managing director of PMC Bank, Joy Thomas, said in interviews published in the national media that, the cooperative had been doing business with HDIL since 1989. We kept it (exposure) undisclosed to avoid chaos, a situation from which we would not have been able to recuperate. We went to the RBI seeking time to resolve the issue but they went in a different direction,” he said. The breach in exposure limit was not reported to the RBI for six to seven years.
“We wanted the involvement of the deputy governor of RBI but we were only able to meet the executive director. We had approached the RBI hoping they would give us a resolution plan and allow us more time to resolve the issue,” said Thomas.
According to the former managing director, a small group of people in the bank were aware of the unreported NPAs but the board did not know about the development “For the past few years, even though the repayment was irregular the bank did not report the advances as NPAs because we had been updating our security. We had enough security. Even last week we had added some security in the account,” he said.
He also assured people that this is not a fraud and their money will not be lost. “Whatever has happened is not a fraud. Nobody has run away with the money without providing security. It is a technical matter which could have been managed better,” he said accusing the RBI of failing to manage the situation in a better manner. Thomas also mentioned that the bank has an exposure of Rs 2,500 crore to HDIL, which is almost a third of its loan book.
These revelations though have not made much of an impression on PMC Bank depositors in the state. Most have blind faith in banks and no other avenue to park their savings. They believe that the crisis is only a temporary and will blow over in the days to come. Majority Goan depositors are of the opinion that the RBI will relax restrictions further over the next few days and they will be able to withdraw their deposits slowly. .
Verlekar is hopeful that PMC Bank will come out of the predicament it is in and be back on its feet. “The bank says that it has securities to cover the loans to HDI. It should recover its money if the securities are sold,” he says. Verlekar is also optimistic by the fact that the RBI is appointed an administrator to set things right.