The Reserve Bank of India’s (RBI) move to take charge of one of the country’s top five co-operative banks on Tuesday has left thousands of depositors in the lurch and sparked renewed concerns about the health of India’s troubled banking sector.
Depositors of the Punjab and Maharashtra Co-operative (PMC) Bank were informed on Tuesday they can withdraw only a sum of 1,000 rupees ($14.1) from their bank account over the next six months, while the bank itself has been put under the direction of the central bank and barred from renewing, or granting any loans, or making fresh investments without prior approval of the RBI.
The sudden move caused PMC Bank depositors to panic and led to protests and long queues outside the bank’s branches. It has 137 branches that are spread across seven states in India.
“My money is gone now,” said Ashok Mahto who stood forlorn outside a bank branch in Santacruz, a suburb in Mumbai city, convinced that the 65,000 rupees that had taken him six months to accumulate has been lost forever.
Mahto, who said he needs the money urgently for his sister’s wedding next month, is not alone. Thousands of depositors across various branches have stood outside demanding answers about their life’s savings.
India has more than 1,500 small urban co-operative banks that typically service small local communities in certain districts or states.
Over two dozen of these co-operative banks are now under RBI administration, but PMC Bank - with deposits of 116.17 billion rupees as of March 31 - is by far the largest to be hit by such RBI measures.
Its plight has also raised fresh fears about the broader Indian banking sector that has been rocked by a multi-billion dollar fraud at a state-run lender, the collapse of a major infrastructure lender, bad loan issues at state-run banks and a liquidity squeeze that has hit shadow lenders.
The public sector bank index .NIFTYPSU, which surged 10.4% over two trading sessions following a government announcement of a big cut in corporate tax rates last week, has since fallen as much as 7.3% in trading on Tuesday and Wednesday.
PMC Bank itself sought to calm depositors and Managing Director Joy Thomas, in a text message to customers on Tuesday, attempted to reassure them that the bank’s issues would be resolved within six months.
“We have ample assets to cover all our liabilities toward the depositors. All my loans are backed by adequate securities. It is just a question of time,” Thomas said in an interview with CNBC TV18 on Wednesday.
Still, depositors remained unconvinced and bank employees were despondent.
“Our staff has worked hard to win the confidence of clients over the years. After this incident, it’ll be very difficult to revive that confidence,” said Sonia Malik, a branch manager at a PMC Bank outlet in New Delhi, adding employees are worried about their jobs too.