PMC Bank row: A look at troubled urban co-operative banks in India

The Reserve Bank of India (RBI) has imposed restrictions on Mumbai-based Punjab and Maharashtra Cooperative Bank (PMC Bank). According to the RBI, depositors will be able to withdraw only Rs 1,000 from their accounts. "However the directions to PMC Bank should not be construed as cancellation of banking licence", said the RBI. PMC Bank can continue to undertake banking business with restrictions till further notice/instructions from RBI. The RBI may consider modifications of these directions depending upon circumstances. The restriction will remain in force for six months from the close of business of the bank on September 23", added RBI.

Further, according to restrictions, the bank will also not be able to grant or renew any loans and advances, make any investment, incur any liability including borrowal of funds and accept fresh deposits, disburse or agree to disburse any payment whether in discharge of its liabilities and obligations, without prior approval in writing from the central bank.

PMC Bank is a multi-state scheduled urban co-operative bank (UCB) with operations in Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh and Madhya Pradesh. Founded in February 1984 it has 137 branches in six states and ranks among the top 10 cooperative banks in the country. The Bank was granted scheduled status by RBI in 2000.

According to PMC Bank's annual report, its asset quality or the gross NPAs ratio declined around 2.02 percentage points between FY2017 and FY2019. Its Net NPA rose to 2.19 per cent in fiscal 2019 from 0.96 per cent in FY2017. The bank is no exception given the poor and worrisome state of the sector as a whole. Amidst all this, the structure and the performance of Urban Co-operative banks would be interesting to know.   

As on March 2018, a total of 1,551 UCBs exist -- 54 Scheduled UCBs and the rest, 1,497, as Non-Scheduled UCBs. A majority of UCBs with an approximate share of 57 per cent have B rating followed by just 328 of them having an A rating, as on March 2018.

A majority of UCBs are located in Maharashtra (498), followed by Karnataka and Gujarat with a share of 17 per cent and 14.2 per cent. While Gross NPA ratio of PMC Bank increased from 1.74 per cent in FY2017 to 1.99 per cent in FY2018, the ratio actually declined for all scheduled UCBs from 6.98 per cent to 6.2 per cent, during the period.    

Some financial parameters of the bank too did not move in tandem to its segment performance. The net interest margin of the scheduled UCBs rose from 2.43 per cent in 2016/17 to 2.54 per cent in 2017/18 while the average net interest margin of PMC Bank  marginally declined from 4.49 per cent in FY17 to 4.38 per cent in FY18. However, the return on assets of this category of banks as a whole, including PMC Bank fell in 2017/18.

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