PremiumThere is only one way to describe the scheme for the amalgamation of the Punjab and Maharashtra Co-operative Bank Ltd (PMC Bank) with Unity Small Finance Bank Ltd (USFBL) – a travesty of justice.
The scheme, sanctioned and notified by the Union government on the eve of the country’s 73rd Republic Day, at the behest of the Reserve Bank of India (RBI), goes against all that has been held sacrosanct by the Indian public and strikes at the very root of the edifice on which the banking sector in India has been built: trust in banks, more particularly, the regulator, RBI.
For, perhaps, the first time in recent memory (Madhavpura Mercantile Co-operative Bank in early 2000 was the last such) bank depositors are being asked to suffer for the failure of a bank; the onus for which lies not only on the bank management in question but also on the banking supervisor, the RBI. The latter may point to the difficulty in supervising cooperative banks, given the dual control of the RBI and the Registrar of Cooperatives (of the state government in the case of single state cooperatives and the Central Registrar of Cooperative Societies in the case of multi-state cooperatives).
And yes, the dual structure (remedied by Parliament in September 2020) did limit the RBI’s ability to ensure proper remedial action. But that does not absolve it completely. If, as it now transpires, the PMC Bank management colluded with the management of Housing Development and Infrastructure Ltd (HDIL) (now under investigation for fraud) and it was excessive exposure to the latter that was its undoing, should the RBI not have woken up to this (alerted depositors) earlier?
Remember, RBI has consistently refused to concede a long-standing demand to make its inspection reports public (so that depositors can know if their deposits are safe) because such information could impair confidence in the banking system. While this could be justified in a scenario where RBI ensured no depositor loses her money, it falls flat in the new scenario where depositors are asked to take a hit for the bank’s failure to deliver on the implicit duty enjoined on the bank under the RBI Act to protect depositors’ interests.
Remember, PMC is featured in the Second Schedule of the RBI. Inclusion here is an indication that RBI is satisfied the affairs of the bank are not being conducted in a manner ‘detrimental to the interests of its depositors’. PMC depositors, therefore, had nothing to fear; till the bombshell of September 2019, when RBI declared a moratorium.
Remember also, PMC is not the first scheduled bank to collapse. Over the past few years, we’ve seen the collapse of Lakshmi Vilas Bank (an old private sector bank) as well as Yes Bank (a new private sector bank). However, what stands out in the case of PMC Bank, as distinct from the other two, is that while RBI was quick to come to the defence of depositors of these banks – its press release announcing the moratorium of Lakshmi Vilas Bank assured depositors they will not lose their deposits – PMC depositors have been left in the lurch.
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