RBI keeps hapless PMC Bank depositors in wait until year-end

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It has been an agonisingly long wait for depositors stuck in Punjab and Maharashtra Cooperative Bank (PMC Bank), that collapsed in September 2009. The Reserve Bank of India (RBI) has now extended the existing restrictions on the bank further from July 1, 2021 to December 31, 2021.

The central bank said the extension takes into account the time required for completion of reconstruction of PMC Bank. It had recently okayed a takeover proposal from a consortium of non-banking finance company, Centrum Financial Services (CFSL), and a fintech startup BharatPe .

“The proposal has been found to be prima facie feasible. Accordingly, in specific pursuance to their offer dated February 1, 2021, the RBI has, on June 18, 2021, granted “in-principle” approval, valid for 120 days, to CFSL to set up a small finance bank (SFB) under the general guidelines for ‘on tap’ licensing of small finance banks in the private sector dated December 5, 2019,” said the statement.

Background

As a probe into the bank’s accounting lapses progressed, RBI put severe operational restrictions on the bank, including on cash withdrawals, on September 23, 2019. Cash withdrawals were initially capped at Rs1,000 per account. On September 26, the restrictions were eased and a total of Rs10,000 could be withdrawn by customers. Later, it increased the prescribed withdrawal limit to Rs 50,000, on November 5, 2019. Subsequently, the central bank doubled the withdrawal limit to Rs 100,000 on June 19, 2020.

Depositors of the bank went through a harrowing time in the pandemic and the subsequent lockdowns.

Earlier, the RBI had extended the restrictions from March 26, 2021 up to June 30, 2021.

Murky dealings

The multi-state co-operative bank having 137 branches spread over half-a-dozen states with a majority of them in Maharashtra, ran into trouble following financial irregularities associated with a huge exposure, nearly 73% of its total advances, to Housing Development Infrastructure (HDIL), a real estate group, and manipulation of its books of accounts. Of the overall loan book of Rs 8,300 crore, PMC Bank loans to HDIL stood at Rs 6,226 crore.

After it was proved that HDIL, its promoters Rakesh and Sarang Wadhawan, and a few former officials committed a fraud on PMC Bank, the high court had appointed a committee to oversee the sale of assets of HDIL to pay the depositors of Punjab and Maharashtra Co-operative Bank (PMC Bank). The court had said if the proceeds from the sale were insufficient to pay the dues, the committee would identify and dispose the properties of other companies owned or promoted by the Wadhawans that were mortgaged with the PMC Bank.