PMC Bank crisis: Why there's still some hope for depositors

There is chaos amongst small depositors of troubled Punjab and Maharashtra Cooperative Bank (PMC), which is under the monitoring of the Reserve Bank of India (RBI). Is this the end of the road for depositors? Surely not.  There are a many possibilities of exemption, change in direction or order provided RBI is satisfied that is viable, NPAs are low, stocked with adequate capital etc. But the situation is not normal. There can be some stringent action in the near future. So what all can happen:  

Exemption for marriage and medical emergencies

A depositor is allowed a higher withdrawal from the existing Rs 1,000 provided he needs his money for his own marriage or medical emergencies. In the past RBI has been liberal in relaxing for the marriage of the depositor or for his own medical emergencies.

Increasing Withdrawal Limits

The RBI has powers to enhance the existing Rs 1,000 per depositor withdrawal limit.  In February, RBI had increased withdrawal limit from Rs 1,000 to Rs 50,000 per depositor in case of Goa-based Mapusa Urban Co-operative Bank.

Extending prohibition period from six months

If the RBI is satisfied with progress that the bank can get back to shape in a short period, it will free the bank from its clutches. Normal operations will then start. If not, RBI has powers to extend the period. Some co-operative banks are under RBI's umbrella for more than 2-3 years. Maharashtra based R S Co-operative Bank is facing RBI restrictions since June 2015.  Kapol Co-operative Bank faced RBI restrictions for a long time from March 2015. New Delhi-based Vaish Co-operative Commercial Bank also faced a long spell of RBI's direction since August 2015..

Setting loans against deposits

The RBI can also allow setting of loans (not repaid) by a borrower to be set off against his or her money in the deposit account.  In Mapusa Urban Co-operative Bank, RBI allowed the bank to set off loans against deposits if the condition in the loan agreement permits such setting off of loan amount.

Monetary Penalty

The bank can face monetary penalty if there are any violations of its guidelines especially KYC or anti money laundering etc. In the past, RBI imposed penalties in co-operative banks for violation of guidelines. RBI in the last few years is creating strong deterrent by imposing penalties on banks for violation of guidelines.

Eventual liquidation of the bank

RBI has the right to recommend eventual liquidation of the cooperative bank if assets are not sufficient to meet liabilities or run normal operations of the bank. This happens because of inadequate capital, no scope for revival. The RBI then requests the Registrar of Cooperative Societies for winding up the bank and appointing an official liquidator. On liquidation, every deposit is insured up to Rs 1 lakh from the Deposit Insurance & Credit Guarantee Corporation (DICGC). Any liquidation in a bank is not good news for depositors who have more than Rs 1 lakh.

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