`YES Bank-like rescue plan not possible for PMC Bank'

The Reserve Bank of India has informed the Delhi High Court that the rescue plan put in place to save Yes Bank cannot be executed in the case of PMC Bank because of restrictions in rules governing cooperative banks.

“Unlike in the case of banking companies such as Yes Bank where the provisions of BR Act allow investments in shares of one banking company by another willing banking company, the provisions as applicable to cooperative banks do not allow multi-state cooperative banks to acquire shares of other multi-state cooperative banks,” the RBI said in an affidavit filed with the High Court.

In June, the Delhi high court had directed the Centre and the Reserve Bank of India to explain how the depositors of Punjab and Maharashtra Cooperative (PMC) Bank are “differently circumstanced" in comparison to Yes Bank. RBI had taken control of both Yes Bank and PMC Bank. Then the central bank put together a reconstruction scheme for Yes Bank with State Bank of India leading a consortium of other banks to invest in Yes Bank. This allowed Yes Bank depositors to carry out banking transactions with minimum disruption. But in the case of PMC Bank, RBI has adopted a different approach under which depositors have been gradually allowed to withdraw higher amounts of cash. But even now there is a cap of ₹1 lakh on withdrawals from PMC Bank. This has put several depositors of PMC Bank under duress. Public interest litigation was filed by one Bejon Kumar Misra questioning the different approach by the RBI.

RBI said that the rescue plan for Yes Bank could not be replicated in PMC Bank’s case because in Yes Bank voting rights of shareholders were linked to the extent of shareholding like any other company but in a cooperative bank, the principle of “one member one vote” is followed irrespective of the quantum of shareholding. “There is no concept of controlling interest ( in cooperative banks). This is a huge disincentive for any prospective investor,” RBI said.

The central bank also said that as per the cooperative societies Act, the board of directors comes in through an election process so even if an entity invested into PMC Bank, they will have to contest an election to gain Board seat.

The PIL had also argued that PMC Bank depositors should be given ₹5 lakh per depositor from the Deposit Insurance and Credit Guarantee Corporation (DICGC). However, RBI has rejected this because funds from DICGC is given only when a bank’s licence is cancelled. RBI said that since PMC Bank was an operational bank, depositors cannot claim the deposit insurance.

The court has asked all needy depositors who have urgent need of cash for medical or other emergencies to apply to RBI. “It was directed that all needy depositors shall have to submit the representation with advocate for RBI and after considering the same, the release of money may be allowed,” aid Shashank Deo Sudhi, the lawyer representing the petitioner.

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