business

Updated: Jul 04, 2020 02:19 IST

Mumbai branches of Punjab and Maharashtra Co-operative Bank Ltd (PMC) witnessed chaotic scenes on Tuesday after the Reserve Bank of India put regulatory restrictions on the bank for six months with effect from September 23.

Long queues of account holders, spilling onto the roads at places, could be seen as anguished depositors rushed to the PMC Bank’s branches in different parts of the city to make withdrawals even as police were deployed around the branches to avert any untoward incidents.

Watch | Chaos outside Mumbai based PMC bank after RBI imposes restrictions

Described as a multi-state cooperative banking entity, the PMC Bank has branches in Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh and Madhya Pradesh. Founded in 1984 in a small room in Mumbai, it has now grown to a network of 137 branches in six states and ranks among the top 10 cooperative banks in the country.

According to the RBI regulations, PMC cannot grant or renew any loans and advances, make any investment, incur any liability including borrowing of funds and acceptance of fresh deposits or disburse any liabilities without the prior approval from the RBI, said the bank in a press release dated September 23.

Long queues of account holders, spilling onto the roads , could be seen at Andheri branch of Punjab and Maharashtra Co-operative Bank Ltd . ( Satyabrata Tripathy/HT photo )

The savings account holders with the PMC Bank cannot withdraw more than Rs 1,000. Moreover, if the account holder has any kind of liability towards the bank, the amount in her/his bank account will be first used to adjust the relevant borrowing account.

“Unfortunately if you are holding an account with this bank, you are not left with many choices,” said Vishal Dhawan, founder, Plan Ahead Wealth.

However, some relaxations have been made in the regulations. The bank can renew any existing term deposit only on maturity and in the same name and same capacity only. Expenditures like employee salaries, rent and taxes, electricity bills stationery, certain legal expenses and likewise have been allowed. The bank is also allowed to make investment only in government or SLR approved securities which mainly include cash and gold.

“There are many challenges with cooperative banks. The credit control tends to be lower in cooperative banks which often lead to such situations. The interest rate which the bank provides you on your deposits is high and to counter that the lending rates are equally high on the loans. Hence the risk profile of the customers should also be high and you need to be wary of it,” said Dhawan.

This case is a classic example of why you should not put all your eggs in one basket. “Keeping all your money in one account can pose a liquidity risk for you in incidents like these. It can spiral into a huge cash flow issue and pose serious risks if you own a business,” said Dhawan.

However, one need not panic about all holdings in their bank accounts. The number of controls tends to be higher when it comes to larger banks.

The bank has also been allowed to set off its loans against deposits if the borrower provides that the deposit in his savings bank account with PMC Bank can be used towards his or her loan account and this setting off cannot be subjected to any restrictions such as an order by a Court of law.