Restrictions placed on PMC Bank. Should you panic?

The RBI has imposed severe restriction on PMC Bank and barred it from carrying out bulk of its routine business transactions for 6 months
Restrictions placed on PMC Bank. Should you panic?

New Delhi: The Reserve Bank of India (RBI) imposed severe restriction on Mumbai-based Punjab and Maharashtra Cooperative (PMC) Bank. The RBI has barred the bank from carrying out bulk of its routine business transactions for a period of six months.

"The issue of the directions by the Reserve Bank should not, per se, be construed as cancellation of its banking licence. The bank will continue to undertake banking business with restrictions till further notice/instructions," the RBI said in a notification on Tuesday.

What are the restrictions about?

The restrictions extend to both lending and withdrawals. This means that a customer can withdraw only Rs 1,000 once over the period of the entire six months from savings or current account or any other deposit accounts.

Why has RBI placed curbs on PMC Bank?

The RBI is responsible for monitoring banks' financial health and issuing directions in case of concerns over the financial health of a banking institution. However, the Central bank has so far stated no reasons for placing restriction on PMC Bank.

On the face of it, PMC Bank is a profitable bank with a low NPA ratio. However, the imposition of curbs does hint at the possibility of the discovery of irregularities in its books. The shock move by the RBI has left the bank's customers in a state of panic as uncertainty clouds the fate of their savings and deposits.

Should you panic?

The imposition of restrictions on the bank does not mean that the bank is going under. A retail banker said, "The bank will not go into bankruptcy immediately." The intent behind the imposition of restriction on banks is to stop any harmful practice and give the bank the time to repair its financial situation.

What happens to your deposit?

Even if PMC Bank goes belly up, deposits with all banks are guaranteed under the Deposit Insurance and Credit Guarantee Corporation (DICGC) to the tune of Rs 1 lakh, including interest.
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Deposits upwards of Rs 1 lakh, however, could be at risk if the bank collapses.

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