PMC Bank's liquidity profile is good, depositors need not worry: RBI

ustomers stand outside the Punjab and Maharashtra Cooperative Bank at GTB Nagar in Mumbai, Tuesday, Sept. 24, 2019. (Photo: PTI)
Punjab and Maharashtra Co-Operative (PMC) Bank’s liquidity profile is good enough and depositors should not panic, said Reserve Bank of India (RBI)-appointed administrator J B Bhoria on Wednesday.

Bhoria was appointed administrator of PMC Bank on Monday evening. He is yet to finalise the liquidity profile of the bank as the inspection of its books continues.

However, he said depositors should not panic. Even the bank’s loans were secured against adequate assets.

“The bank has 19 per cent SLR (statutory liquidity ratio), 3-4 per cent CRR (cash reserve ratio) and has its own properties. So, on these counts alone, there is enough liquidity,” Bhoria said.

The need for deposit insurance scheme of up to Rs 1 lakh gets activated only at the time of liquidation of a bank, which is unlikely in the case for PMC Bank, Bhoria said.

SLR is the share of deposits that needs to be invested in government securities. CRR is the share of deposits that needs to be maintained in cash.

These are considered liquid assets that can be utilised to immediately pay back depositors at least Rs 2,555 crore for a deposit base of Rs 11,617 crore as on March this year.

As for how long before depositors can withdraw their money from the bank, Bhoria said was left to the RBI to decide. It could be well before six months — the period of restriction imposed by the RBI — or it could drag on, depending on the complexity of the case.

Sources said the inspection would be completed in about two weeks.

Even as there was widespread criticism of the RBI action, officials said the central bank would have to step in at some point if there were irregularities in a bank. The irregularities in this case mainly pertain to divergence in non-performing assets (NPA) classification.

“Whenever the RBI steps in, an ‘all inclusive’ direction is issued, which immediately stops all activities in the bank with the purpose of saving depositor’s interest,” said a senior RBI official.

The only intriguing point here is that generally such instructions come after the inspection of the bank is completed. The bank’s inspection for the last financial year has not yet started. The bank’s managing director and CEO Joy Thomas told customers in a message that the bank management had pointed out certain irregularities in the bank to the RBI.

However, in an interview with CNBC TV18, he said the RBI action was “harsh”. The bank had sought two months’ time to rectify the mistake, but RBI decided to freeze even deposit withdrawals, instead of restricting lending activities for example.

PMC Bank is likely having a disproportionately high exposure in the real estate sector, particularly in case of HDIL, which is in bankruptcy.

RBI on Tuesday imposed withdrawal limit of just Rs 1,000 from each account for the next six months. This has led to chaos outside the bank branches as panic stricken depositors try to withdraw their deposits.

Bhoria told Business Standard that the immediate priority of the bank will be to ensure smooth withdrawal of whatever limit the RBI allows from time to time.  But hopefully, the depositors would be paid back considering the assets of the banks.

Thomas told in the television interview that loans were given against 150 per cent of securities.

But Thomas also did not deny that it has high exposure to bankrupt real estate firm HDIL. It may not be as high as Rs 2,500 crore, as expected, though.

Interestingly, even HDIL was taken to the bankruptcy code by the lenders, PMC bank drew two pay-orders on August 31 totaling Rs 96.5 crore for HDIL promoter Sarang R Wadhawan to repay non-convertible debentures of HDIL invested by Bank of India.

Thomas said this was done to safeguard PMC Bank’s own interest as HDIL being in the bankruptcy court would mean its assets would be attached by other lenders as well.

PMC Bank had a business of Rs 20,000 crore, comprising deposits of Rs 11,617 crore and advances worth Rs 8,383 crore, at the end of March this year.

Joy Thomas, managing director, PMC Bank, in a message to customer said: “I regret to inform you that your PMC Bank has been put under regulatory restriction by the RBI for a period of six months due to irregularities disclosed to the RBI.”

“As the MD of the bank, I take the responsibility and assure all the depositors that these irregularities will be rectified before the expiry of six months. All efforts are made to remove the restrictions by rectifying the irregularities,” Thomas said.

However, the RBI is probing the role of Thomas in the alleged irregularities.

The RBI is investigating if there is wrongdoing on the part of anybody.

“The administrator will now verify and validate the position of the bank and will take a call as what has to be done,” said a source.  

The multi-state-cooperative bank had gross NPAs of 3.76 per cent and net NPAs of 2.19 per cent at the end of March this year. It has 137 branches. 

The RBI said the directions should not be construed as cancellation of the banking licence.

“The bank will continue to undertake banking business with restrictions till further notice/instructions. The Reserve Bank may consider modifications of these directions depending upon circumstances,” it added.

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