On 24th September the depositors of the Punjab and Maharashtra Cooperative (PMC) Bank, woke up to the RBI directive that they are allowed to only withdraw Rs. 1000 from their accounts for the next six months. This resulted in wide spread panic and protests from the depositors who feared losing their savings. The decision came out of the blue and when the balance sheet of the bank was apparently healthy! The PMC bank being one of the top five cooperative banks, the move of RBI without any stated reason came as a shock! What emerged in the following days was an ugly story of monumental fraud jeopardising the savings of the people.

In brief, on September 17th the discrepancies in the bank’s balance sheet were brought to the notice of RBI, following which the management met with the RBI director. On 24th September, RBI took the decision to freeze the functions of the bank, without informing the customers the reason for its decision. It was after pressure from depositors that it increased the withdrawal limit from Rs. 1,000 to Rs. 10,000 (which has been increased to 25,000 on 4th October). For days RBI kept silent while the now suspended M.D Joy Thomas, kept assuring in media that it is not a big problem and the bank has enough assets to cover loses. It was only after almost a week later that news of PMC’s exposure to Housing Development and Infrastructure Limited (HDIL) emerged. PMC had kept lending to the now bankrupt HDIL to the tune of 6,500 crores, which amounts to 73 percent of the bank’s total loans. In a confessional letter to the RBI, Joy Thomas mentions how he, along with six other members of the board took the decision to not just restructure and ever green the loans to DHIL but also created over 20,000 fake accounts to spread the amount! This forgery was done to throw the auditors and other board members off the scent and keep the books clean. PMC, being a multi-state cooperative bank has a customer base of over 3 lakh, most of whom are working people. As of today there is no guarantee that the people will be getting all their savings back.

While the issue of PMC has made news because of the size of the bank and that it is one of the top five cooperative banks, many others died a silent death in the recent past. Close to a hundred cooperative banks have been put under various restrictions by the RBI stating bad performance. To mention a few, Mumbai based Kapol Cooperative Bank, has been put under a withdrawal cap of Rs. 3000 since 2017. The depositors of Rupee Cooperative bank have been denied access to their savings since 2013, though RBI let the bank function. The CKP cooperative Bank had been put under directives since 2012 and in 2015 depositors had to convert part of their money into share capital to save the bank! In most of these cases, the people are still waiting to get full amount of their deposits! These are not isolated cases, just between January and September 2019, 24 cooperative banks have been put under various directives from the RBI.

The problems of cooperative banks seem to be multi-fold. Unlike the commercial banks, Urban Cooperative Banks (UCBs) are regulated by both RBI and the Registrar of Cooperative Societies of appropriate states. This sharing of the regulatory responsibility between RBI and state governments has allowed for lax regulation and oversight of UCBs has placed UCB under the control of state level politicians, many of are in positions of control of various UCB. Be it the case of PMC which is clearly a calculated fraud or many other UCBs which have been inundated with NPAs due to faulty lending, one cannot but hold government and the regulator accountable. It is the duty of both to ensure that the working peoples’ deposited savings are safe!

But what we have seen in the past is that for every failure of the UCBs, it is working people who pay for the loss either by forgoing their savings other than the one lahk insured via the DGCC or by being forced to buy the share capital of the bank to keep it running! Considering that UCBs cater to a rural and semi urban population and is seen as the last mile connectivity of banks, it is a cruel joke on those who put in their meagre savings in the bank! The working people who had no role in the bank’s decision making, lending practices or administrative or audit functions in any capacity cannot be held responsible for the fault of the management and the oversight of government and the regulators.

The point here is not about people accessing cooperative banks but why the regulators did not do their job. Even in the case of PMC, should the regulator not have seen it as a problem that Waryam Singh, who was one of the board members of HDIL was also holding the position of chairman of PMC? Atleast in the case of PMC, there has been arrests made but in most other cases it is only the people who lose their lives savings.

Other arguments that emerge is to do away with cooperative banks as they are failing. The problem here is not the existence of the cooperative banking system, but lack of regulation, political influence and crony capitalism. Cooperative banks are accessible in many less banked and unbanked areas and cater to largely working people and pensioners.

At a time when the commercial banks are in crisis and forced into further crisis by government mandated mergers which will affect their lending for at least a year) and now with failing of PMC and 4 other cooperative banks put under directives of the RBI, there is a general feeling of savings not safe anymore. But, be it commercial banks or cooperative banks RBI’s solution to any loos seems to be to loot the public, either in name of bank charges or by forcing people to buy shares of the bank. It is high time that we demand accountability from our banks and force the regulators to hold decision-makers accountable. Further, this is the time to demand not just an increase in deposit insurance, but a 100 % guarantee for deposits of the common people in public banks. When corporates are given Tax cuts, loan waivers in name of write-offs, the government and the RBI should at the minimum ensure that savings of the working class is protected.


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