5 Moves RBI Needs To Make on PMC Bank Right Now
The failure of Punjab and Maharashtra Cooperative Bank (PMC Bank)—a relatively small multi-state cooperative bank—is a test for the reformist Narendra Modi government. Remember, Modi sarkar has waged a war on cash and wants us to keep our money in banks. The public fell in line, because it had no choice. The government cannot, now, try to distance itself from direct responsibility for a bank failure, as the finance minister (FM) has tried to do.
The Reserve Bank of India (RBI) has appointed a retired chief general manager (CGM) as the administrator of PMC Bank and a team of faceless retired bankers to help him. It has also commissioned a forensic audit by Grant Thornton which will take anywhere between four to six weeks, at the earliest, to submit a report. This is too slow, given that the stress and anxiety has already led to several depositors losing their lives.
What PMC Bank needs is a Satyam-like quick resolution by a team that is savvy and fully empowered to ruthlessly push for a solution that is in the best interest of a majority of stakeholders. For this, speed is of the essence. RBI does not seem to understand that it does not have time on its hand and delays are going to worsen the situation. 
Crisis resolution cannot be handled by a retired central banker; most of them operate out of an ivory tower, with very little understanding or empathy for issues faced by people—especially businesses and non-salaried professionals. I say this without any disrespect to specific individuals; but it needs to be stressed that it requires a different skill-set and higher level of influence. 
Delay in resolving the crisis will erode depositors’ money as the Bank pays salaries to its employees at the 137 branches that continue to function. One also assumes that the fees paid to the administrators and forensic auditors will come out of deposits with the Bank. 
Loans to the Wadhwan group of HDIL, which caused the collapse, are variously estimated at between Rs2,500 crore and Rs6,500 crore. What is the status of nearly Rs2,000 crore that the Bank has lent to others? Are these loans secured? Has PMC Bank issued letters of credit (LCs) or given guarantees? If so, are these being honoured?
Nearly a month after the crisis, there is no clarity on the financial status of the Bank, while depositors’ money gets depleted every day that it remains in suspended animation. A forced takeover of the Bank— as some people are demanding—will be nothing short of a scandal, especially when there are 1,500 cooperative banks out there, apart from some giant finance companies, that are tottering dangerously. 
Fortunately, RBI governor Shaktikanta Das is a lot more open and receptive than his predecessors. On 15th October, on behalf of Moneylife Foundation, we highlighted some of these issues to governor Das. Many of them need to be addressed with the same speed that was shown in making changes during demonetisation. Here are five moves that RBI should make urgently.
1. Statutory Dues: PMC Bank has business accounts of tens of thousands of small businesses where it was their sole banker. Its failure has set off a chain of alarming issues in relation to payment of statutory dues. Remember, defaults—even if they are not the customers’ fault—have been criminalised by this government. 
Payments by PMC Bank were abruptly stopped on 23rd September. This means businesses would have failed to make payments of advance tax, GST (goods and services tax) and tax deducted at source (TDS) that may have already been deducted from employees or creditors. There may be provident fund dues to be paid. 
Failure to make these statutory payments is a jail-able offence. Under the new rules, this may affect the ability of unconnected businesses to get GST credit, if any supplier in the chain is a PMC Bank creditor and has failed to deposit GST. The finance ministry needs to step in and ring-fence PMC Bank victims from needless harassment and prosecution for being unable to make payments due to the Bank’s failure.
2. Individual Payments: What is the status of salaried employees or professionals who had standing instructions with the Bank for payment of credit card dues or EMIs (equated monthly instalments)? 
In a week or two, depositors who are unable to make payments, despite having funds, will be marked defaulters for no fault of theirs. The system has no provision to provide any leeway for this. 
RBI needs to ensure that innocent depositors are given time to get back on their feet and the Bank’s failure is not allowed to affect their credit scores until then. This requires a systemic solution that should apply in all such cases. 
3. HDIL Dues: A press release by the Enforcement Directorate (ED) states that it has seized assets and properties valued at Rs3,830 crore and another 80 properties around Mumbai that have yet to be valued. This caused elation among depositors. 
But it is unclear how many banks and lenders will stake a claim to these assets and whether the same asset has been pledged to multiple lenders. More importantly, ED’s seizures could land up in court under the PMLA (Prevention of Money Laundering Act), unless a different approach is adopted that allows for quick resolution and repayment to PMC Bank.
4. Finding a Buyer: When the PMC Bank debacle first erupted, its reputation as a well-run bank with 137 branches across states attracted attention. A large cooperative bank even toyed with the idea of making an acquisition offer, but got cold feet once it learnt of the enormity of the fraud. 
Even today, PMC Bank would find buyers if there is a quick estimation of losses and amount recoverable. A leading banker, who prefers to remain unnamed, told me, “The key would be to find a potential buyer who would be considered ‘fit and proper’ by RBI to run a bank and has deep pockets to acquire one.”
Such a buyer may be willing to pay anywhere between Rs1,500 crore to break into the banking business with a network of 137 branches and trained staff on board. But if the losses are higher, there will be no takers. 
A less attractive option would be to sell the branch network, maybe to banks looking to expand into key geographies where PMC Bank operates. Again, this needs quick action, smart decisions, well-structured bids and willingness of RBI to play ball. 
5. Changing the Rules: Finally, one hopes that the PMC Bank debacle is a harsh lesson to the government and a realisation that the cooperative bank structure has long outlived its utility; most of them are badly exploited by politicians. 
The government must use the crisis to convert these into scheduled commercial banks with stringent oversight and supervision by a single regulator. The structure of deposit insurance has to be reworked. Collection of insurance premium from all banks cannot work when the risks involved are vastly different. In the past 25 years, all payments/settlements by the Deposit Insurance and Credit Guarantee Corporation have been for failed cooperative banks. Isn’t it ironical that these banks attract depositors by offering higher interest on deposits? 
Clearly, they need to pay a risk-based insurance, as recommended by the Jagdish Capoor committee (but ignored for decades), instead of being clubbed with nationalised banks and large private banks. The same is true for payment banks and small finance banks. Of course, this will not work when there is outright fraud, as in the case of PMC Bank. 
So, a quick resolution template with appropriate empowerment of RBI is a necessity at a time when the government is moving towards more privatisation. Each of the above-mentioned moves requires speed; but this understanding seems to be missing, so far.
Ramesh B Mhadlekar
4 years ago
The retired Regional director Mr. J.B. Bhoria now an administrator of PMC Bank was claiming bogus overtime for his driver continuously for five months including Saturday Sunday when RBI was closed and Public holidays and also while absent from headquarters on tour. Can his report be relied upon? The said submission is based on RTI received from RBI. Also a newspaper cutting received on whatsapp reveals that the members of Nasik Merchant Bank have demanded an inquiry of Mr. Bhoria for the 5 years of his tenure while he being appointed by RBI. His son was also illegally involved in possession of an RBI official Vehicle which met with an accident and was a police case with Malabar Hill as per RTI. His integrity is probably doubtful.
Ramesh B Mhadlekar
4 years ago
The retired Regional director Mr. J.B. Bhoria was claiming bogus overtime for his driver continuously for five months including Saturday Sunday when RBI was closed and Public holidays and also while absent from headquarters on tour. Can his report be relied upon? The said submission is based on RTI received from RBI. Also a newspaper cutting received on whatsapp reveals that the members of Nasik Merchant Bank have demanded an inquiry of Mr. Bhoria for the 5 years of his tenure while he being appointed by RBI. His son was also illegally involved in possession of an RBI official Vehicle which met with an accident and was a police case with Malabar Hill as per RTI. His integrity is probably doubtful.
4 years ago
In my opinion, long term solution will be to close all cooperative banks having dual supervision of RBI and state RCS and no clear ruling pertaining to cooperative banks phasewise by liquidation (or by making policy of gradual winding up).

As cooperative banks are formed only for big scam with collusion with RBI officials. This is evident from gradual decrease in numbers of cooperative banks from 1986 UCBs in 2004 to 1551 in 2018. That is in last 15 years, 365 UCBs have been closed (mostly due to scam with active support of corrupt RBI officials).

So it is better to close all cooperative banks having no necessity in todays' scenario to avoid future PMC scam and harassment to common depositors.

Suketu Shah
4 years ago
Speciality of Modi govt is whatever they say is final.RBI,Supreme Court,anyone else all are irrelevant.Their best minister also calls Einstein as Newton and still thrashes trolls!

Public is only required for votes -nothing else.
4 years ago
Good Analysis and Excellent Solutions.
4 years ago
RBI officials corrupt role in nourishing such scams BY LEGALLY HELPING SCAMSTERS invariably similar pattern in all urban cooperative banks/credit cooperative societies in the name of big unsecured loans to the relatives of top management as following--

(1) At present , 82 urban cooperative banks illegally running (merely on the basis of their application for license under consideration--a RBI coined fictitious term) . Moreover, there is no maximum time limit of getting license of such running banks on the basis of merely "application for license under consideration".

(2) Out of 17 annual returns, no punishment on non-submission of annual return even in more than two decades by RBI.

(3) Every year audit mandatory but no audit of any bank in more than two decades till scam appear

(4) RBI issues public notice banning such urban cooperative bank/credit cooperative society that maximum withdrawl limit from this bank will be -----Rs only till finalization of entire accounts .

(5) Then the accused bank officials file writ petition against RBI ban to lift the ban by false claims of having sufficient reserves.

(6) RBI officials remain silent in the writ petition at high courts by suppressing the truth of UNLICENSED, UNINSURED BANK for more than two decades not eligible to get any relief till payment to all customers (in very corrupt manner) . Morevoer, RBI corrupt officials even uphold the false claim of big recovery by defaulter bank without getting examined .

(7) During writ petition by defaulter cooperative bank (in which state RCS is not party), RBI official hurry up impatiently to give NO Objection to remove word "bank" and permit to work as credit society under state RCS WITHOUT MAKING HIM PARTY without ensuring payment to the customers . Such legal blunder of leaving liability to RCS without making him party greatly helps further scam.

(8) Finally, RBI corrupt officials keep copy of decision of writ petition favouring defaulter bank to start banking activity FOR ONE MONTH without serving copy to state RCS under whose supervision it has to work as credit cooperative society.

Aforesaid steps make amply clear the very active corrupt role of Dy GM rank officials of RBI in flourishing the scams and no limit of time in decades for unlicensed banks to work as "application for license under consideration".
P M Ravindran
4 years ago
A very informative and meaningful report. But is anybody listening. Speed, of course, is the essence in resolving any and all disputes. But then our justice delivery system is the most failed system in our country, isn't it? And who is responsible for that? Our judges simply blame a fictitious judge to population ratio to justify preposterous delays and accuse the investigators and prosecutors when even their decisions look questionable. We recently had the chief justice of a high court resign when posted to a smaller high court as the chief justice. It was naturally read by the public as a punishment and she made her resignation look like a protest. And then the cat was out- she had been attending court only in the afternoons and she also allegedly had some dealing with some politicians! Anyhow, this is not the first case of a bank failing and I suppose enough studies would have been carried out on earlier failures. And those reports could be gathering dust with some bureaucrat in is office. The equally important question is how many of the guilty have got punished so far?

Interestingly at Marad in Kerala where the apex court dusted up a review petition of 2015 vintage and ordered 5 flat complexes to be demolished within one month, nothing moved till the Chief Secretary was hauled up and made to appear in person before the court. And then things happened so fast that the flats have been vacated, a former judge headed committed is vetting compensation to be paid and one developer and two low level public servants have been arrested. Well, only one developer and two public servants...
4 years ago
5th point..changing the rules is the most important..but that is required everywhere which is a volumnous job.For stricter rules there is severe opposition. Congress party institutionalized corruption on all walks and it is very difficult to uproot it.
Actually I felt very bad when Moneylife was campaining against making Aadhaar compulsory....and KYC was one of the basic manipulated in PMC bank to make fake accounts. Common biometric ID which can be tracked is a basic requirement.
P M Ravindran
Replied to Umadevi comment 4 years ago
There is no doubt that Adhaar as a system is conceptually good but the issue is with implementation. Similar systems had been reportedly tried and given up in US, UK and Australia on issues of economy and privacy. And India is a country where ration system has been in existence since independence and we still haven't been able to issue ration cards correctly. Even the other day a report in the local daily gave statics of APL people, including government employees, using BPL and other priority cards. And no punishment to any offender. In fact sometime back the Chairperson of the Kerala State Women's Commission was found using two ration cards (with one of them being priority card) at two different places with different sets of family members. She continues to head the Commission.

Coming to Adhaar, KYC etc I have been getting false alerts through e mail about validating transactions carried out by one Ravi Kumar Ojha. Though the e mail is addressed to me the person addressed is Ravi Kumar Ojha and it gives the last 4 digits of the UID which are not mine. I have complained a couple of times initially and not received any reply. There are three questions: one, how did my e mail id get linked to Ravi Kumar Ojha's KYC? Two, why am I not getting alerts on my mobile, which number is available even on the Adhaar card issued to me, and which can be more promptly attended to? The third question is : will Ravi Kumar Ojha be getting the alerts he should be getting?
shadi katyal
4 years ago
Since Modi govt came in power lot has been done to damage the economy and
RBI has been abused and accused of its independence thus creating a confusion.
The number of scams on banks during this regime is much more than what we claimed on UPA
Where is any new laws or amendments and protection of depositors by this govt or is Modi only happy to buy opposition MP's to create absolute power?
P M Ravindran
Replied to shadi katyal comment 4 years ago
This is one of the most stupid comments that I can even imagine. The foundations of this country in its current form had been laid by a fraud Pandit. While he thought he was fit enough to be the first PM of this country without any experience in governing even a local body, he wanted experienced hands as the Governor General and the Commander in Chief of the armed forces. So he appointed the Viceroy, to kick out whom the nation had paid a heavy price for almost a hundred years, as the 1st Governor General of 'free' India and another Briton as the 1st C-in-C. Even when this C-in-C put in his papers, because of Nehru's stupidity in addressing the Kashmir situation correctly, he wanted to appoint a Briton as the next C in C also. This was thwarted by the then Lt Gen Nathu Singh Rathore who bluntly asked him the most pertinent question: what experience did you have to head the government of the newly independent country? Of course that helped make Gen Cariappa the 1st Indian C in C. But that was not the end of Nehru's stupid and treacherous acts. And one cannot expect Narendra Modi to undo all the harm done to this country over 70 years of the scamgressie rule in such a short time. When the foundations are rotten the structure has to be reconstructed from the scratch. And NaMo is trying to do the impossible as of now but he is the first PM who is working whole heartedly for the nation, body, mind and soul.
Anoop P
Replied to P M Ravindran comment 4 years ago
Demonetization is arguably the worst blunder any leader can make. This has thrown India\'s economy to atleast a decade behind.
4 years ago
The main reason behind failure of urban cooperative banks , credit cooperative banks is extreme corruption of RBI officials in keeping silent over their deficiency of standards laid down by RBI.

So liable RBI officials need to be booked and their ill acquired properties need to be attached alongwith reduction of their pensions.
4 years ago
well written article touching various issues that will crop in coming days for PMC account holders leading to action from other arms of Government
P S Krishnan
4 years ago
RBI in its current form has outlived it's utility. They lack the competence and expertiseto regulate commercial banks. Need to look at an alternative approach to regulate commercial banks
P M Ravindran
Replied to P S Krishnan comment 4 years ago
Absolutely true. Not just RBI but almost the whole system of governance. Please read my articles DEMOCRACY?…EAST IS EAST AND WEST IS WEST! and REFORMING OUR JUSTICE DELIVERY SYSTEM at http://suchnaexpress.blogspot.com/2011/01/democracyeast-is-east-and-west-is-west.html
DrRajesh Bheda
4 years ago
Fact of dual control is hyped unnecessarily. Except for elections & the board for all other aspects of banking, RBI rules. Even for CEO appointment if RBI puts its foot down the board will comply. It can dictate very much if it wants too & unless there is very strong politician involved it even does not succumb to political pressure. Of course it does succumb.
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