Money & Banking

PMC fiasco: It’s a wait-and-watch game for customers, say experts

Surabhi Mumbai | Updated on September 25, 2019 Published on September 25, 2019

Anxious depositors try to withdraw money at the Akruli branch of Punjab & Maharshtra Cooperative Bank in Mumbai   -  Arunangsu Roy Chowdhury

Punjab and Maharashtra Co-operative Bank, which is now under directions of the Reserve Bank of India, has left its more than 50,000 members in a lurch, but experts say it is a wait-and-watch game.

For starters, the bank is insured with the Deposit Insurance and Credit Guarantee Corporation. Each depositor in a bank is insured up to a maximum of ₹1 lakh for both principal and interest. This will, however, be paid only if the bank goes into liquidation.

“Since the directions have been imposed by the RBI, no funds can be withdrawn. Customers need not worry about the safety of their funds, although immediate cash flows would be a challenge,” noted Suresh Parathasarathy, a financial planner.

Short-term loans

As the withdrawal is capped at ₹1,000, customers can look for short-term loans from friends or relatives or even get a personal loan based on their passbook. But for those who had saved up for life goals, such as a child’s wedding or education, the current restriction could be a cause for concern.

The RBI could gradually allow some more withdrawals. It is yet unclear what will happen to electronic clearing service mandates and post-dated cheques for payment of EMIs, but experts say that since there is still a week to go before the new month starts, customers can consider making alternate arrangements.

“For the immediate time period, there is no solution for customers, but in the long-term, customers of the bank won’t lose any money. Some may choose to take legal recourse, but it is uncertain how effective that will be as the RBI is empowered under the Banking Regulation Act,” noted a former public sector bank executive. The current restrictions by the RBI on PMC bank is for a period for six months, and the bank is hopeful that all concerns will be rectified before the expiry of the six-month period. But in previous instances, the regulator has also extended it for longer time periods if it has not been satisfied with the state of affairs.

In a statement on Wednesday, the RBI said it has extended the directions issued to the UP Civil Secretariat Primary Co-operative Bank, Lucknow, for a period of six months from September 26, 2019, to March 25, 2020, subject to review.

Published on September 25, 2019
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