Mumbai: Gross underreporting of bad loans is one of the primary reasons behind Reserve Bank of India’s (RBI) restrictions on Punjab and Maharashtra Cooperative (PMC) Bank, said two people aware of the development, adding that RBI is currently looking into the books of the bank.
According to the first person, the bank’s management has come clean and the central bank has therefore put restrictions on withdrawals as a precautionary measure to avoid a run on the bank. While the bank’s gross bad loans, as per its FY19 annual report, was at 3.76% of its advances, the bank has now disclosed that it is much higher, the person added.
The second person said the central bank is currently doing an audit of the bank to look into the alleged irregularities. To be sure, a cooperative bank is typically audited by the state government and under this audit, transactions are looked into. That apart, RBI does an inspection of the books of cooperative banks every 12 months.
As on 31 March, the Mumbai-based cooperative bank had ₹11,617.34 crore deposits and loans of ₹8,383.33 crore. With a network of 137 branches, the multi-state scheduled urban co-operative bank has presence in Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh and Madhya Pradesh.
RBI, in a press release on Tuesday, said it has placed Punjab and Maharashtra Cooperative Bank Ltd, under directions. According to the directions, depositors will be allowed to withdraw a sum not exceeding ₹1,000 for the next six months. The bank has also been barred from granting or renewing any loans and advances, make any investment, incur any liability like the acceptance of fresh deposits.
The first person quoted above said RBI will review these directions after six months, although it could be normalised earlier as well depending on what the audit reveals.
According to a text message sent by the bank to its customers, its managing director Joy Thomas took responsibility for the “irregularities disclosed to RBI".
“As the M.D. of the bank, I take the responsibility and assure all the depositors that these irregularities will be rectified before the expiry of six months. All efforts are made to remove the restrictions by rectifying the irregularities. I know it is a difficult time for all of you and any apology may not restore the pain you are undergoing," said the text message, seen by Mint.
In its FY19 annual report, the bank said that for speedy recovery of stressed assets, several recovery tools are used by the bank’s recovery team.
“To cleanse the balance sheet, the tool of selling / assignment of NPA portfolio to securitisation companies and reconstruction companies is used by many banks. Your Bank has also sold and assigned 11 non-performing asset (NPA) accounts having principal amount of ₹110.75 crore. The bank has sold the said NPA portfolio to CFM Asset Reconstruction Pvt. Ltd. (CFMARC) for ₹105.00 crore as on 30 March," it said.
