I was on my way home from office that night and I happen to see a hungry stray dog on the way, so I stopped and thought of buying a pack of biscuits to feed the dog. Unfortunately, I had no cash in my wallet and I had to go searching for an ATM to withdraw some money, but strangely my PMC bank debit card was being rejected at every ATM I went to. I assumed that my card might have got damaged and planned on visiting the bank the next day. The poor doggy kept wagging his tail and followed me, thinking he would get something to eat, but sadly I couldn’t feed him that night.
The next morning I woke up to a shocker when I heard that the bank has been put under the directions of the RBI. It was all over the news. No wonder why my card was being rejected. The bank was imposed with several restrictions and was barred to operate for 6 months. Thousands of depositors were panic-stricken and rushed to the bank’s branches to inquire about what had happened, but the guards and police didn’t allow anyone to enter the bank. Some branches were shut and this caused more panic. It was really a devastating situation for the depositors who were mainly traders, self-employed, daily wage earners and salaried employees who had their entire life savings in the bank. The bank’s former MD had sent out a letter to all the depositors assuring that the restrictions imposed on the bank would be lifted soon and the money is in safe hands. Innocent depositors believed things would get back to normal soon and they would be able to get their money back. The withdrawals were capped to Rs.1000 and later increased to Rs.100000 per account. This step was taken to prevent a run on the bank.
What exactly happened at PMC bank? It was a very well-known bank with 137 branches spread across seven states. The bank performed well in 2018-19 and had reported a profit of Rs.99 Cr in its annual report. This was an impressive figure for a public sector bank in its category. No one would have ever thought that a bank with such good performance would collapse all of a sudden. In late September 2019 the RBI put the bank under restriction when they noticed that the financial statements reported by the bank are false and the bank tried to hide bad loans that were disbursed to HDIL. The company that was the bank’s major customer since its inception in 1984. Now, when loans are offered by a bank, an asset is pledged as security for repayment of a loan, to be given up in case the borrower defaults in repaying the loan the bank can recover the money by disposing of the asset. But this was not the case with PMC and HDIL. The bank created dummy accounts for HDIL which appeared as deposits or assets against which loans were given to HDIL. These were fictitious assets and were never checked by the RBI because due to time constrain the auditors only checked the reports that showed incremental advances and did not go deep into the operations of the accounts. The bank even tempered their software to hide these things from the RBI. Recently the MD of the bank admitted to hoodwinking the auditors, how many of them are involved in this fraud. Who knows? The total exposure of the bank to HDIL is estimated at Rs.6500 Cr. Although the assets of HDIL have been sealed by the Enforcement Directorate but recovery process may take years.
Depositors were promised that everything would get resolved in 6 months. But the RBI kept extending the curbs on the Bank. The depositors have been waiting for a resolution since September 2019. Some of them who had deposited small amounts were able to come out of the trap when the withdrawal limit was increased to a lakh. But there are still many including me who are yet to receive all their money. Helpless depositors have been running from pillar to post, holding protests, meeting politicians and filing court cases in an effort to recover their hard-earned money that is stuck in the scam-hit bank. Many people were unable to sustain their life and had to depend on loans and borrowings to meet their daily needs. Nearly 70 depositors of the bank have lost their lives, some committed suicide. Days passed by but nothing happened, the bank’s revival was nowhere in sight. But we still had hope from the amendment of the Banking Regulation Act which would bring Cooperative banks under the supervision of the RBI. Because when a bank is under the regulator’s supervision the chances of liquidation are very less. We have all seen how RBI has revived Yes bank, Corporation Bank and Andhra Bank which were on the brink of wind-up. The amendment never happened tho, however the RBI stated that they have a restoration plan for PMC bank and looks like this is the only hope for the depositors.
The Bank and RBI have been in talks with many investors and are trying to secure the best deal in favour of the depositors and the long-term viability of the revived bank. Given the financial position of the bank, this may take some time as this is a very complex process. So far the bank has received bids from 3 investors. One of them is Centrum Group that is run by the renowned banker Jaspal Bindra who has served as the CEO and Executive Director of Standard Charted Bank. Taking into account the condensed banking experience of Jaspal Bindra. Centrum Group received an In-Principal nod from the regulator to setup a small finance bank. But the bank’s image and reputation have been tarnished after the mega fraud came to light, hence it is going to be tough for the investors to regain the trust of depositors and bring in fresh deposits. The bank has already burned crores of rupees for employee salary and paying rent for the branches and a delay in revival will lead to more money being spent. Even so, Jaspal Bindra has seen an opportunity in acquiring this bank and he is confident that he will be able to find a way to restructure and bring the bank back on track.
For a bank that is mired with fraud, distrust among the depositors and public, it will be a challenge for the RBI and rescuer to plan for revival. Will the bank be revived or liquidated is still uncertain.