On 26 Sep 2019, due to irregularities observed in bank accounts the Reserve Bank of India (RBI) suspended the Managing Director and the Board of Directors of the Punjab and Maharashtra Cooperative (PMC) Bank, having its headquarter in Mumbai. It appointed an ex-RBI officer as the administrator and barred the bank from renewing or granting any loans or making investments without prior approval of the RBI. Depositors were informed that they can only withdraw a maximum of 1000 rupees from their accounts over the next six months. This shocked and angered more than 900,000 depositors of the Bank whose savings were now stuck in it.
|Shocked bank depositors queue to get their money|
|Depositors demonstrate in front PMC Bank|
The PMC Bank is one of the ten largest cooperative banks of the country with total deposits of Rs 11,617 crore as on 31 Mar 2019 and outstanding loans of Rs 8,383 crore. It has 137 branches across six states, with nearly a third of them in Mumbai.
The investigations revealed that a huge fraud has been carried out over the years. PMC officials were giving forged audit reports to RBI for over a decade from 2008 to August 2019 to hide its non-performing loans. The problems came to light only when a whistle-blower informed the RBI of wrongdoings in the bank on 21 Sep. It later came out that just one company, Housing Development and Infrastructure Ltd (HDIL) had outstanding loan of about Rs 6,500 crore, which amounts to 73% of total loans given by the bank. This was completely against the rules.
In order to hide the collusion between HDIL and PMC, the bank management replaced 44 loan accounts of HDIL with 21,049 dummy accounts. The FIR filed against PMC Bank and HDIL officials has alleged fraud and wrongful loss of Rs 4,355 crore and charges of cheating against HDIL.
What is worse is that HDIL has filed for bankruptcy on 21 Aug. So, there is little chance of recovering loans. The fact that deposits of up to 1 lakh are protected under the Deposit Insurance & Credit Guarantee (DICGC) Cover is a small consolation to the thousands of depositors. The insurance thus covers only 44% deposits by value.
Besides individual depositors, about 1500 credit cooperative societies have put their money in PMC. Large amounts of tens of lakhs rupees of housing societies are stuck in the bank.
The anger of PMC depositors knew no bounds when they learnt that the bank’s chairman, Waryam Singh is a family friend of the Wadhwans, the promoters of HDIL and a sister company, DHFL. He served on the Board of Directors of both the companies for many years.
Due to the severe hardship faced by depositors, there have been dozens of protests in Mumbai. Account holders and bank employees are blaming both the bank and the Reserve Bank of India for the crisis. “The bank’s director, Ranjeet Singh, is the son of four-time MLA Sardar Tara Singh of the Bharatiya Janata Party. It is an open secret now that the bank was able to flout RBI rules and do as they like with the common public’s money, only because they were protected by the party. And now they are stopping us from even registering our protests,” said Damini Shah, one of the oldest account holders with the bank.
“This is peak festival season. Modi government pushed us all towards paperless transactions. We are not just paperless but cashless now,” said Tushar Ghate, a protestor. Three depositors have lost their lives due to stress or lack of treatment due to their inability to withdraw money from the bank.
Depositors want the state government to intervene. Many housing societies are blaming the state government which forces them to deposit all their money in a cooperative bank. Some of them have launched a campaign – No Solution, No Vote – to press the state government into action over the crisis. Many of them approached the Supreme Court for help but the Court has refused to intervene.
The protests forced the RBI to relax the withdrawal limit from Rs 1,000 to Rs 10,000 and subsequently to Rs 25,000 for the next six months. Now the limit has been further raised to Rs. 40,000.
A PMC Bank Depositors’ Association has been formed. It has filed a writ petition in the Bombay High Court, demanding 100 percent protection for deposits in cooperative banks and not just Rs 1 lakh. The move has received the support of trade unions like CITU, HMS and INTUC.
At one time PMC was considered a strong bank due to which three weak banks, namely, Kolhapur Janta Sahakri Bank Ltd. (Kolhapur), Jaishivrai Sahakari Bank Ltd. (Nanded) and Chetna Sahakari Bank (Karnataka) were merged with PMC Bank in the year 2008, 2009 and 2010.
It is clear that in case of PMC, the capitalists owning HDIL and bank directors along with the top officials have colluded to loot people’s life-time savings that they have put in the bank believing that they will be safe and available to them when required. All the regulators also failed in discharging their duty – internal and statutory auditors, RBI and the state government.
Cooperative banks are cooperative societies run as banks. They were born out of the concept of co-operative credit societies where members from a community band together to pool some funds from their savings; this is used as a buffer to extend loans at favourable terms to whichever member is in need. These banks have played a major role in providing banking service to small businesses and local communities in urban areas.
Originally a cooperative bank was seen as an enterprise based on the principles of cooperation - mutual help, democratic decision making and open membership. Today, these banks are like any other institution – those who have more money and political clout dominate and run the organisation in their personal interest. Audit and other regulations are violated with impunity. And regulatory bodies connive with the very violators and the unsuspecting masses of people are the victims.
In Maharashtra, which pioneered the cooperative bank movement in the country, they have become tools of political parties and capitalists. Control of the co-operatives mean consolidation of political, economic and social power. Directors and chairpersons of co-operatives became contestants in state and national elections. Hundreds of thousands of co-operatives in sugar factories, spinning mills, agro-based products, credit societies and banks have been translated into enormous financial and political power.
The banks are run as personal fiefdoms, disbursing loans to friends and relatives towards unviable projects, thus exposing its depositors to great risks, and ultimately to the collapse of the bank.
RBI is in charge of financial supervision but management of these is overseen by state and central governments. The dual control of the cooperative banks makes them easy target for fraud and loot.
In Maharashtra, cooperative banks typically hold deposits for other credit societies and also housing societies, as local laws mandate that these societies compulsorily keep their deposits with such banks.
At present more than two dozen co-operative banks are under RBI administration for similar reasons as in the case of PMC Bank. Their depositors are also facing restrictions of withdrawal limit of Rs 1000 per depositor in six months. In the past two years alone, five other urban co-operative banks in Maharashtra have been placed under restrictions by RBI citing financial irregularities. These include Kapol Co-operative Bank Ltd., City Co-operative Bank Ltd., Karad Janata Sahakari Bank Ltd., Shivam Sahakari Bank Ltd., and Youth Development Co-operative Bank Ltd. On an average about 16 banks default and die every year.