“Justice for PMC Bank customers,” was the collective voice of hundreds of depositors and customers of scam-hit Punjab & Maharashtra Co-operative (PMC) Bank and experts. Moneylife Foundation, along with All India Bank Employees Association (AIBEA) and Centre for Financial Accountability (CFA) had organised a public meeting to understand issues with PMC Bank and others, demand answers from the regulators and government and discuss the way forward.
The expert panel consisted Girish Kuber, Editor Loksatta, Advocate S Balakrishnan, who was Bureau Chief of Times of India, Devidas Tuljapurkar, General Secretary of Maharashtra State Bank Employees Federation (MSBEF) and Joint Secretary of AIBEA, Priya Dharshini- senior research associate with Centre for Financial Accountability (CFA) and Sucheta Dalal, Managing Editor of Moneylife and Founder-Trustee of Moneylife Foundation.
Initiating the discussion, Mr Girish Kuber touched upon the urgent need to have a fool-proof mechanism to control and regulate the banking system. He cited an old joke to highlight the recent series of frauds in banks, “Robbery is a job of amateurs. Professionals set up a bank.”
The dual regulation for co-operative banks ends up with the co-operative banks getting a step motherly treatment from everyone. It is a sad state of affairs and with all the political connections associated the bank, regulation often has to wait till elections are over.
According to Advocate S Balakrishnan, the RBI needs to act with transparency and must be made accountable for the current co-operative bank imbroglio.
He said that he finds it extremely disturbing that the dice is heavily loaded against the common man. Middle class people end up paying a heavy price for all these scams.
It is extremely worrying that depositors across co-operative banks are panicking about their hard earned money and there is an urgent need for a sustained unified joint effort to take on the RBI, he said. He called on all the aggrieved people to join forces and file a writ petition.
He added disappointedly “The RBI is the watchdog but its response after the fraud came to light, has been vague and non-commital”. He called for an urgent detailed forensic audit of the RBI itself, given that “the central bank functions in the most opaque manner”.
Mr Tuljapurkar, who as a whistle blower in Bank of Maharashtra (BoM), has exposed fraud in BoM in the past, feels that in the current atmosphere it would be wrong to only speak about the PMC bank case in isolation.
He said that despite regular audits, inspection and concurrent audits, banks regularly end up in defrauded. The system is rotten and if we need to fix the system then we need to fight unitedly.
Priya Dharshini from CFA said that the problem is not specific to the PMC bank. The nature of the regulator institution has been changing in the last few years. Protecting depositors’ money now ranks far lower in the RBI’s priority list.
Ms Dalal said that one co-operative bank fails every 2-3 months. There are more than 1500 co-operative banks. Hence bailouts cannot work for all banks. It has already been 18 days and a takeover might still be possible. But any future buyer needs to have a very clear picture of the status of PMC Bank. The buck stops at RBI and we need official answers. The window of opportunity is very small and we need to build up the pressure and look for solutions to resolve the impasse.
Several prominent citizens, activists, entrepreneurs and lawyers were also present for the meeting.
Participating in the discussion, Murali Neelakantan, who is former global general counsel of Cipla and former senior partner of Khaitan & Co, said that the only thing that could make an impact would be if even 1% of the 300,000 depositors (3000 people) come together and file a writ petition.
We have put together a legal team, two senior counsels from the Supreme Court who are wiling to come and help fight this legal battle.
It can only work if each aggrieved person attending this discussion comes and attends the court hearing. Even if a few thousand depositors come and attend the court hearing, it will build huge pressure on the court. He also explained the difference in strategy: filing a PIL vs filing a writ petition.
Z. B Inamdar who was working for Bombay Merchantile bank since 1986, shared his personal experience as a banker and a whistleblower. The number of people coming forward to file the writ petition would play a major role in building up pressure.
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1. Increase size withdrawal per depositor customer to Rs 25,000 or ts 5,0000 (not Rs 1000 as in most of the cases). This will reduce their hardship to some extent.
2. PSU/New Pvt Banks should also be subjected to this / similar stringent action (PSU Banks may not be excluded) instead of PCA
3. Other standalone options such as a change in Management/ key personnel etc to be explored first, wherever possible
4. Enhancing Insurance Cover: Presently eligible deposits to the tune of Rs1,00,000/- are covered under the DICGC cover. With the rise in general income levels resulting in an increase in the size of individual bank deposits, this ceiling of Rs 1,00,000/- was considered insufficient by RBI had appointed Damodaran Committee (who submitted its final report way back in the year 2011). It recommended RBI & Govt that this cover should be raised to at least Rs 5,00,000/- to encourage individuals to keep all their deposits in a bank convenient for them. Now we are in 2019 it paltry cover of Rs 100000. In the USA it is USD 100000.
Further, a strict ‘time limit’ should be stipulated to settle the DICGC insurance claims once the bank is de-licensed.
Till the time the cover is enhanced depositors/public should be well informed on matter How to get maximum Deposit Insurance (DICGC) Cover using different channels.
5. RBI may not give blanket approval for raising Tier-II bonds (in the form of ‘LTD’) as in case of PMC Bank. It may ensure clear directions about adding an important clause in offer document (altogether missing in case of PMC Bank, please refer annexure), advise banks correctly on the matter of nomination, direct banks on payment of proper stamp duty to this debt product (in due consultation with the stamp authority, missing in PMC bank’s case), and provide clarity on listing of these bonds issued as LTD, following norms on retailing of debt instruments (unless privately placed).
RBI should lay-down strict criteria to cap raising LTD/tier-II bonds which currently termed by RBI as ‘LTD’.
RBI may revisit LTD its directions issued on DCB. BPD. MC 10/09.18.201 /2015-16 dt: 01-07-2015 by amending its directions UBD.PCB.Cir No.4/ 09.18.201/-8-09 dt: 15-07-2008, consequential to my approaching HC of Bombay and it’s communication to RBI.
6. Step up off-site and on-site inspection of large coop banks and reduce the periodicity and strict follow-up on compliance. RBI may set-up department for Coop banks inspection like DBS.
7. Depending on the time likely to taken by a regulated entity to address the regulatory concern, set appropriate period for restrictions 3 or 6 months and extend in 3-6 months period instead of 6 months each time.
8. Speedily consider exceptional cases of release of funds to depositors having serious medical problems based on merits of the case (within existing DICGC limits) based on restrictive criteria pre-fixed to be set off against the DICGC claim amount in case of the bank is subject to be liquidated.
9. It would be ideal if broad reasons for stringent directions are communicated to the public at large appropriately, so that rumour mills will be less active. RBI may also examine other options rather than ‘knee jerk’ action like this.
10. Speedily consider exceptional cases of release of funds to depositors having serious medical problems based on merits of the case (within existing DICGC limits) based on restrictive criteria pre-fixed to be set off against the DICGC claim amount in case of the bank is subject to be liquidated.
With more and more banks going to be set up after ‘on TAP’ licensing to small Finance, Payment banks etc there should be a proper mechanism to monitor these type of stringent actions.
I wish there is a need to highlight these matters to public at large, that would put public pressure on banking regulator and government and force them to have a debate before the customers of another bank face similar problem.
( Shivaprasad Laxman Chhatre)
Land: 020 22947152
Virendra Jain
Founder Midas Touch Investors Association
I am too tiny to apprise your efforts.
Anyway, this has always been the fear at the back of my mind regarding private banks too. I've been telling my family members that you need to keep your money in govt. banks until RBI increases the deposit limit that is guaranteed ( in case the bank collapses) to about Rs. 20 Lakhs or so from the small value (Rs 2 Lakhs?) that they guarantee now. My guess though is as far as cooperative banks are concerned, there is no such thing, am I right?