Fraud Hit PMC Bank Costs Rs27 crore/ month to remain in Limbo

Fraud-hit Punjab & Maharashtra Co-operative Bank (PMC Bank), although in limbo and  under an administrator, will gobble up Rs27 crores a month to just to keep its 137 branches open across six states. This is nearly Rs one crore a day.

One the eve of Diwali, it is important for people to know that nothing substantial has happened in over a month towards resolution, but the cost of keeping the bank alive will be steadily eating up depositors funds. The longer the bank remains in this state, more money it loses, because the core banking business of lending money has been halted.

While aggrieved depositors are struggling to get their hard earned money back from the bank, the staff will earn salaries as usual, even if some of them have their own funds stuck in the bank, since it was their primary account.

Depositors are continuing to hold protests, trying to meet politicians and senior officials from the Reserve Bank of India (RBI). However, the RBI has refused to provide any answer so far, even while it has appointed Grant Thornton to conduct a forensic audit.

A depositor with over Rs 2 crore of his family money stuck in the bank raised an interesting question at Moneylife’s office today, which remains unanswered. According to media report, over 29% of the bank’s deposits were withdrawn in the three days before 23rd September, when RBI restricted withdrawals to Rs1000. (PMC Bank crisis: ‘5% of bank’s deposits were withdrawn in just two days). How did the bank have so much liquidity to be able to permit such large transfers? He asks. He also says that the  bank had been actively canvassing deposits for six months by claiming that it was into a massive expansion and also planning an Initial Public Offering (IPO). The IPO claim was clearly false, the suspicion is that the bank was either trying to raise deposits to cover the hole caused by its lending to Housing Development and Infrastructure Ltd (HDIL) or senior management and some insiders knew that the game was up and had created liquidity to withdrawn their own funds. Unless the RBI is made to provide information, depositors remain clueless.

Few days ago, there were talks about rich depositors of the bank bailing it out. According to Mumbai Mirror report, 200-odd ‘big depositors’ promised to maintain an untouched deposit of Rs5 crore each, if the PMC Bank was allowed to resume operations and start to function normally.As reported by Moneylife, this proposal to retain deposits will only yield Rs1,000 crore for PMC Bank. It is not clear how that would be enough to revive the Bank, when the capital is eroded, the dubious loan extended to the HDIL group is anywhere between  Rs4,500 crore to Rs6,500 crore and it is unclear what extent of the other loans are recoverable.

You may also want to read...
The Dangerous ‘Bail-In’ Proposal by PMC Bank’s Rich Depositors

  • Like this story? Get our top stories by email.

    User 

    PMC Bank: Withdrawal Limit Increased to Rs1 Lakh for Medical Emergencies
    Account holders of Punjab and Maharashtra Co-operative (PMC) Bank can now withdraw additional money of up to Rs60,000 for medical emergencies. This amount is reportedly in addition to the Rs40,000 withdrawal limit set earlier.
     
    Hence, a depositor facing medical emergency would now be able to withdraw a total of Rs1 lakh within a period of six months. In order to avail this additional amount PMC depositors will have to approach their respective branches and apply in person, while providing sufficient proof of their situation.
     
    This new development comes after a delegation of protesting depositors met with RBI officials on Tuesday. The delegation, which was protesting at Mumbai’s Azad Maidan, was assured by RBI that their money was safe. They were also assured that RBI will come up with a solution and possibly convey it through a press conference or a press release between October 25 and 27.
     
    Recent reports from RBI have revealed that the financial position of PMC bank had been substantially impaired due to fraud perpetrated on it by certain persons. RBI had hence imposed restrictions on the bank to ensure available resources were protected and not misused or diverted.
     
    RBI has said that it is closely monitoring the developments and will continue to take necessary steps in the interest of the depositors of the bank. Initially, the withdrawal amount was limited to just Rs10,000 within a period of six months which was later increased to Rs25,000 and most recently to Rs40,000. However the restriction on the time frame of six months continues to remain.
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    Dattaram Dessai

    1 year ago

    The RBI is granting a BHIK to PMC bank holders. A,FIR should be filled against RBI Governor who is responsible for death of five PMC investors.
    It appears to me that they should solve the problem on priority as many death or suicides can occur.
    The new elect Chief Minister of Maharashtra should come forward for help of unfortunate investors of PMC bank.

    Vijay Nargund

    1 year ago

    Right

    lcs 0001

    1 year ago

    Most of PMC BANK depositors has voted against BJP. Now it's must for BJP pm and can to take immediate action and to do something for helpless PMC deposit holders
    Thanks to PMC deposit holders unity.







    REPLY

    sanjay mengle

    In Reply to lcs 0001 1 year ago

    shiv sena ,udhaw thakre should support BJP in forming government only if all PMC Depositers are paid there money back.

    Annu Viswanath

    In Reply to lcs 0001 1 year ago

    Why blame the BJP for the activities of criminal minds?

    Vishal Pawar

    In Reply to Annu Viswanath 1 year ago

    Why not to blame, why we depositors should suffer for fraud done by the Bank and Builders, why we should celebrate Black Diwali when our hard earned money is in Bank. You will not understand our pain unless you lose your savings in Bank.
    Why Government is not saving us by merging the bank Or by giving bail out package.
    it is all in their hands but not in their Hearts to save us.

    Jaydeep Vaze

    In Reply to Vishal Pawar 1 year ago

    Hello vishal i understand your pain. But there wont be any takers for this bank as the bank has a hole of Rs. 2000 crore. No other bank will be ready to merge it.

    kichu b

    1 year ago

    Todays election results says it all. BJP s performance has been poor. BJP could have easily won 140 plus,had PM modi intervened in PMC bank scam and just given a favourable assuarance to the account holders, unfortunately he kept mum,despite even ex PM, Dr.Manmohan Singh , making a request.

    This shows that of the 16 lacs accountholders in PMC bank, atleast around 10 lacs are Maharashtra voters, who i believe vent their ire against BJP.

    BJP lost a golden oppurtunity to be a common mans government.

    REPLY

    sanjay mengle

    In Reply to kichu b 1 year ago

    I request Shiv sena Udhaw Thakre to support BJP in forming government only if BJP Promises to return all account holders there money back.

    kichu b

    1 year ago

    Todays election results says it all. BJP s performance has been poor. BJP could have easily won 140 plus,had PM modi intervened in PMC bank scam and just given a favourable assuarance to the account holders, unfortunately he kept mum,despite even ex PM, Dr.Manmohan Singh , making a request.

    This shows that of the 16 lacs accountholders in PMC bank, atleast around 10 lacs are Maharashtra voters, who i believe vent their ire against BJP.

    BJP lost a golden oppurtunity to be a common mans government.

    Newme

    1 year ago

    Now people in medical emergency have to spend time in gathering the documents and to show the proof. Even in a scam Babus create more bureaucratic work.

    REPLY

    Farooque Khan

    In Reply to Newme 1 year ago

    The RBI never directed the scamsters and the auditor of RBI who used to give good reports of the bank is going scotfree and we the depisitors are being guided by RBI to give proofs of our medical and educational emergencies. Wow this is really great scamstars were not asked any questions by RBI and were allowed to loot our hard earned money and we the depisitors should show them why we need our own hard earned money.

    Vijay Nargund

    In Reply to Farooque Khan 1 year ago

    Well said

    Annu Viswanath

    In Reply to Farooque Khan 1 year ago

    Well said.

    Vijay Varshney

    In Reply to Newme 1 year ago

    You are right. We are running from pillar to post just to get our own money which is being burnt by so called govt /RBI babus by giving fake Audit reports. SHAME MODI GOVT.

    Annu Viswanath

    In Reply to Vijay Varshney 1 year ago

    That's the sad part. We slog for so many years to collect lakhs and these criminals swindle in crores and enjoy life.




    naveen pahwa

    In Reply to Annu Viswanath 1 year ago

    It seems only culprit of the system is who deposit their hard earned money in such a crap banking system for which actually none is responsible. Now to get our own money we have to beg from others and actually in real terms we the people at their marcy...........

    Indian Banks to Face Capital Shortfalls in the Event of NBFC Stress: Fitch Ratings
    Indian banks would face a capital shortfall of about $50 billion in the event of a systemic crisis in the non-banking financial company (NBFC) sector, as these entities have thin buffers against such stress, says Fitch Ratings. 
     
    In a note, the ratings agency says, "Systemic stress across India’s NBFCs would deal a significant setback to the banking sector recovery, reversing recent improvements in performance, pressuring viability ratings (VRs) and posing solvency risks to state-owned banks with the thinnest buffers. Credit profiles of the state banks would come under significant pressure, and the weakest - including those with VRs in the 'B' range - would face heightened solvency risks without capital injections from the government."
     
    Fitch conducted a stress test to examine the potential impact on banks of the NBFC sector pressures developing into a broad crisis. It estimated that the scenario would leave banks with an aggregate shortfall of $10 billion to meet regulatory minimums, and $50 billion below the level that we believe would provide an adequate buffer.
     
     
    During FY2014 to FY2019, bank lending to NBFCs increased by a compounded annual growth rate (CAGR) of 17%. During the same period, NBFCs also grew rapidly over this period, taking advantage of the market space created by the capital-constrained state-owned banks pulling back on lending to the non-financial sector. Instead, banks preferred to lend to NBFCs as a way to deploy their excess liquidity while also limiting their direct exposure to the corporate and housing sectors.
     
    This resulted in banks’ exposure to NBFCs reaching 7.4% at FY19, up from 5.3% at FYE14. The more extensive linkages between banks and NBFCs have raised contagion risks in the event that the NBFC sector suffers a crisis, Fitch says.
     
     
    The NBFC sector in India has been under pressure from tight financing conditions since the default of Infrastructure Leasing & Financial Services (IL&FS) in late 2018. The tough market environment is likely to persist, at least in the near term, and will test the resiliency of other NBFCs. 
     
    The most vulnerable are likely to be those that operate with higher leverage and weaker asset-and-liability (ALM) maturity profiles that face higher concentration risks. Typically, this includes wholesale and housing finance companies, Fitch says.
     
    NBFCs are an important source of financing for real estate in recent years, with banks pulling back from the sector. 
     
    Developers are now facing liquidity pressures as NBFCs have also begun to shy away from the sector, showing reluctance to refinance maturing debt of even large, proven developers. Developers have been curtailing growth, but their lack of funding alternatives still makes them vulnerable to the retrenchment in NBFC lending. 
     
    Moreover, demand for property has slowed, especially for high-end projects, which could make it difficult for developers to address liquidity shortages by offloading their inventory of unsold homes.
     
    According to Fitch, large property defaults would result in losses for direct NBFC creditors, and would pose significant contagion risks for the rest of the sector, testing system-wide liquidity. 
     
    It says, "NBFCs source 55%-65% of their total funding from debt instruments, with about 10%-13% coming in the form of short-term commercial paper. Much of their lending is long term, especially in the case of wholesale and housing finance companies, resulting in weak liquidity profiles."
     
     
    "We assume that 30% of the NBFC exposure becomes nonperforming. We view this as close to a worst-case scenario, but the figure also reflects the proportion of the sector that we believe is characterised by riskier business and financial profiles.
     
    We also assume 30% of property exposure becomes non-performing, and that economic knock-on effects lead to an extra 10% of personal, credit card and consumer durable loans and 2.5% of corporate loans becoming non-performing," the ratings agency says.
     
    Fitch estimates banking system’s gross non-performing loans (NPL) ratio to rise to 11.6% by FYE21 from 9.3% at FYE19, compared with its baseline expectation of a decline to 8.2%. 
     
    It says, "We would expect the recovery process to become even more protracted in such a difficult environment, although banks would resort to writing off some of the legacy bad loans in order to manage their NPL stock, as has generally been the case so far."
     
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    Rishi Kumar

    1 year ago

    This is due to only corupted bank authorities who sanction the loans after taking few percentage money to whom who having no repaying capacity.
    Latter on it become NPA and they still get some percentage money for hiding or delaying in declaring these acount as NPA.
    I never found any bank loan sanctioning authority who's personnel property has attached and he is sentenced for whole life prisonment.

    Ramesh Poapt

    1 year ago

    most difficult puzzle to solve by banks/govt/rbi

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 4 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone