RBI extends restrictions on PMC Bank for three more months

Date: 2020-03-25 14:44:46

Reserve bank of India extended the regulatory restrictions on Punjab and Maharashtra Cooperative Bank (PMC) Bank by another three months. The central bank also added that it has been in talks with various authorities for the quick sale of securities and recoveries of loans. The validity of the directive dated 23 September 2019, stands modified from 23 March 2020 to 22 June 2020.

RBI imposed restrictions on PMC bank under Section 35A of the Banking Regulation Act. This was aimed at preventing a run on the bank that could end up endangering the stability of the entire financial system because of a contagion effect.These curbs were put in place after the central bank saw gross under-reporting of bad loans, financial irregularities by the bank’s officials, and failure of internal controls and systems.

RBI superseded the board and the management of the bank and appointed an ex-RBI official as the administrator at the bank.RBI has offered a plan where depositors can invest in a bond called innovative perpetual deposit instrument (IPDI) with a lock-in period of 10 years.The extension of the restrictions comes at a time when RBI and government put in place a bailout package for Yes Bank in no time, while it still has not succeeded in doing so in the case of PMC due to the constraints of dual regulation. Regulation of urban cooperative banks is split between the RBI and the Registrar of Co-operative Societies. In contrast, that of smaller co-operative banks are divided between National Bank for Agriculture and Rural Development (Nabard) and RCS. RCS reports to the central government.