Massive withdrawals at PMC Bank before RBI crackdown

Immediately before the RBI cracked down on PMC Bank, big amounts of cash was withdrawn by some of PMC Bank’s biggest depositors

New Delhi: Immediately before the Reserve Bank of India (RBI) cracked down on Punjab & Maharashtra Cooperative (PMC) Bank in the third week of September, big amounts of cash were withdrawn by some of PMC Bank's biggest depositors, sources revealed on Tuesday. The massive cash withdrawals began after some of these large depositors caught a whiff of the leak to the RBI by a whistleblower, who was reportedly a board member. This, in turn, forced the lender's Managing Director Joy Thomas to confess to wrongdoings.

The whistleblower report that brought down PMC Bank

The report submitted by the whistleblower to the RBI details massive misreporting of non-performing assets (NPAs) by PMC Bank, primarily due to the large exposure to beleaguered developer HDIL. HDIL owes around Rs 6,500 crore to the bank, which amounts to as much as 73 percent of its total loan book.

'Small depositors form bulk of bank's depositor base'

Sources said that the action initiated by the RBI was necessitated because small depositors constitute around two-thirds of its depositor base. "In the initial inspection, the RBI has found that there was massive erosion of deposits from certain accounts. These withdrawals were large in nature. This resulted in the strict action by RBI," the source said.

Number-speak

PMC, which is among India's top 10 urban cooperatives, had total deposits of around Rs 11,600 crore as of September 19. Small depositors made up as much as 63 percent of this with an average balance of under Rs 10,000. Its loan book stood at Rs 8,880 crore. Out of this, Rs 6,500 crore was given to HDIL.

The backdrop

The RBI imposed severe restrictions on Mumbai-based PMC Bank last month and barred the bank from carrying out the 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 a 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.

RBI limited withdrawals from the bank at Rs 10,000 and banned the bank from carrying out any lending activities for the next six months. Such restrictions are placed on banks if the RBI finds that withdrawals are beyond the prescribed threshold in any given period. The curbs are placed to protect the interest of small depositors.