PMC Bank Fiasco

Questioning Efficacy of Regulatory Measures to Prevent Collusion Between Banks and Corporates for Fraudulent Disbursal of Loans

- Aamod Vairagkar

Short of technically cancelling Punjab and Maharashtra Cooperative Bank’s (PMC) banking license, the RBI, via its 23rd September 2019 directive, has virtually stopped it in its tracks from doing further banking business for six months. While the directive is not unique and has precedents - in October 2019 itself - it has extended such sanctions under Section 35(A) for Osmanabad-based Vasantdada Nagari Sahakari Bank, Vithalrao Vikhe Patil Co-operative Bank in Nashik, and Karad Janta Sahakari Bank - PMC’s size is what makes it a warning to depositors. PMC Bank is a multi-State scheduled urban cooperative bank with its area of operation spreading across Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh and Madhya Pradesh. Founded in 1984, PMC Bank has now grown to a network of 137 branches in six States and ranks among the top 10 cooperative banks in the country.

Its balance sheet size is Rs.13,600 crores, which rivals many small finance banks and is even comparable to say the Catholic Syrian Bank (total asset base of about Rs.16,000 crores), which is expected to come out with its IPO soon. As of March 2019, PMC Bank has a deposit base of Rs.11,600 crores. This is far higher than the deposit base of say Equitas or Ujjivan Small Finance Bank (Rs.8,000 - 9,000 crores). Of PMC Bank’s total deposits, Rs.2,300 crores are savings and current account deposits, while Rs.9,300 crores are fixed deposits.

The bank’s annual report reveals tell-tale signs of stress in FY19, with a sharp Rs.303 crores addition to a bad loan book of Rs.148 crores on the back of sizeable exposure to builders and priority sector lending, chiefly to farmers.