india

Updated: Sep 24, 2019 17:59 IST

The Punjab and Maharashtra Cooperative (PMC) Bank had grossly underreported bad loans which led to the Reserve Bank of India (RBI) cracking the whip on it with a range of restrictions to prevent it from collapsing, said two people aware of the development, adding that the central bank is currently auditing the books of the errant bank.

The RBI has put severe restrictions on withdrawals as a precautionary measure to avoid a run on the bank after the bank’s management revealed the state of affairs in the organization, the first person said. He also said that while the bank had earlier reported that its gross bad loans was at 3.76% of its advances in FY19, it has now disclosed that it is much higher.

The second person said the RBI is currently carrying out an audit of the Mumbai-based PMC Bank to look into the alleged irregularities. A cooperative bank is usually audited by the state government and under this audit, transactions are looked into. Other than that, the RBI inspects the books of cooperative banks every 12 months.

As on March 31, the cooperative bank had Rs 11,617.34 crore deposits and loans of Rs 8,383.33 crore. The bank’s network of 137 branches is spread across Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh and Madhya Pradesh.

The RBI issued a statement on Tuesday saying that it has placed the PMC 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 RBI also barred the bank from granting or renewing any loans and advances, make any investment, incur any liability like the acceptance of fresh deposits.

The RBI will review these directions after six months, although it could be normalised earlier as well depending on what the audit reveals, the first person quoted above said.

The bank sent a text message to its customers saying its managing director Joy Thomas took responsibility for the “irregularities disclosed to RBI”.

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.