PMC Bank crisis: RBI’s punitive action due to a ₹2500 crore loan given by PMC to HDIL

On Monday, PMC account holders got a message on their phones that shocked them. PMC Bank was directed by the RBI to let the account holders withdraw no more than ₹1000 for the next six months; not extend or provide any new loans. All of this, overnight. No intimation was given to the customers.

The reason behind this punitive action by the RBI was primarily the under-reporting of Non-performing Assets (NPAs) and underestimation of a debt. PMC gave out a ₹2500 crore loan to HDIL and despite the HDIL defaulting on repayments, PMC Bank’s auditors did not classify the loan to HDIL as an NPA, and the RBI finally put its foot down and termed the loan as a “complete loss”.

But the ultimate victims of the action by the RBI are the PMC Bank’s account holders. They are at a loss and do not know how to sustain for six months without withdrawing cash. enraged and frustrated people are now demanding some solution to their problem and are asking why common account holders are being made to suffer;

“The RBI guidelines in such cases say that the bank must make a provision for the loss. The PMC Bank’s cash reserves stand at around ₹1,000 crores, well short of the ₹2,500 crore loan granted to the HDIL,” The Economic Times quoted sources as saying.

“In case the RBI felt that the loan was not a complete loss, the PMC Bank would have to make provision for 10% of the total loan, for which it had the resources. The fact that the RBI has put severe restrictions on the bank is proof enough that it considers the entire loan to HDIL as NPA,” Economic Times reported.

The change comes amid the mounting despair among the people already facing a deep sense of hopelessness because of the economic slowdown which has resulted in job losses and an increase in prices of essential goods. The scenes outside the PMC Bank’s headquarters in Bhandup conveyed the chaos across the city as hundreds of depositors rushed in on hearing the news of the bank going ‘belly up’. Here are a few tweets showing what had happened on the day people came to know that PMC bank had to limit withdrawals.