On 23 September 2019, the Reserve Bank of India imposed regulations on Punjab and Maharashtra Cooperative (PMC) Bank. This was for the duration of six months due to some alleged financial irregularities. This was followed by an FIR (First Information Report) against the PMC filed by the Mumbai Police. This Article gives a peak on the matter, the action taken after it and the changes made in the Indian banking law.
What is the PMC Bank?
The Punjab and Maharashtra Co-operative Bank is a multi-state scheduled urban co-operative bank. They operate in Delhi, Maharashtra, Karnataka, Goa, Gujarat, Andhra Pradesh, and Madhya Pradesh. It was established in Sion, Mumbai in 1984. It received ‘scheduled status’ from the RBI in 2000, becoming the youngest one to do so.
What is HDIL?
Housing and Development India Limited is one of India’s largest real estate companies. It operates in the Greater Mumbai Metropolitan area. It was established in 1996 in Mumbai.
Action taken against PMC
On September 24, 2019, the RBI limited bank activities for PMC. It restricted the withdrawal amount for PMC customers to 1,000 rupees per customer. Later it was 25,000 rupees per customer for six months.
On September 30, 2019, an FIR was filed against the PMC with the Bhandup Police. This was on the instruction of the RBI-appointed Bhandup branch manager of the PMC, Jasbir Singh Mattha. The case was transferred to the Economic Offences Wing (EOW). It had financial irregularities amounting to more than 4,335 crore rupees. PMC allegedly allowed unlawful loans to Housing Development India Limited (HDIL). This was from 2008 to August 2019 without informing the former board members. Despite there being defaults on the repayments for these loans, they were not classified as non-performing assets (NPA’s).
PMC submitted dummy records instead of the stressed accounts of the group during an RBI inspection in 2017. They were booked under the sections 120B (criminal conspiracy), 406 (criminal breach of trust), 409 (criminal breach of trust by public servant, or by banker, merchant or agent), 420 (cheating), 465 (forgery), and 468 (forgery for purpose of cheating).
In March 2020, the RBI extended the curb on PMC for three more months till June 22. Under the restrictions, the bank was forbidden from renewing or granting loans. It was also not allowed to make investments without prior permission of the RBI.
In June 2020, the regulation was extended till December 22, 2020. The withdrawal limit was raised to 1 lakh rupees per customer.
Action taken against HDIL
In December 2019, a PIL filed by advocate Sarosh Damania against HDIL in the Bombay High Court was heard by a division bench consisting of Justices Ranjit More and S P Tavade. They ordered Rakesh and Sarand Wadhawan, directors of HDIL, to repay the loan borrowed from PMC Bank in the interest of the lender and its depositors. They also ordered the sale of HDIL assets in the interest of PMC and its depositors.
In January 2020, the Bombay High Court set up a three-member panel chaired by former SC judge S Radhakrishnan for the sale of HDIL assets to recover the dues owed to PMC. They were ordered to give a progress report by April 30, during the next hearing of the case.
Common people suffering due to bank scam
Mulund in Mumbai has about 15,000 account holders in PMC bank, who all suffered due to the restrictions in money withdrawal. There are reports of a suicide attempt and eleven people dying due to various medical problems since the news was released. A woman with 1 crore rupees in the bank committed suicide. People started taking to the roads to protest against this restriction. In this process too, two senior citizens fainted during a protest outside the RBI headquarters in Mumbai. Moreover, around 15 people were arrested in front of RBI Governor Shaktikanta Das’ house.
Amending the Banking Regulation Act
The Banking Regulation (Amendment) Bill, 2020 was moved in the Lok Sabha by Finance Minister Nirmala Sitharaman on February 26. This bill strengthens cooperative banks by increasing professionalism, enabling access to capital, improving governance, and oversight for sound banking through the RBI. Sitharaman stated this in her 2020 budget speech.
Announcement of new ordinance
On June 24, 2020, the Union Cabinet held a meeting. They decided on approving an ordinance. It was to bring all the, 540 multi-state, and urban co-operative banks under the control of the RBI. Information and Broadcasting Minister Javadekar said that depositors will get more security. These banks are currently under the control of the Registrar of Cooperative Societies and the RBI. This decision was partly made due to the PMC-HDIL crisis that India faced last year.
So, what now?
The state that PMC is in right now is a cautionary tale for the banking sector and banking law in India. The RBI is reacting to the crisis, but it is late in doing so. RBI has made the situation quite difficult for the painful. This is due to the imposition of heavy restrictions on depositors of the PMC. Whoever was lured in with the high deposit rates of the bank is now facing a tough time. The business model has high deposit rates. It lends money to debtors with questionable credentials at low rates. And hence is a flawed method. This needs to change. Reforming governance is one of the steps essential to rooting out the problem, that the Union cabinet is doing right now. This situation in general calls for economic reform in the entire banking sector. A stricter regulatory control should be there.
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