Banking wrap: How PMC Bank crisis unfolded; Lakshmi Vilas Bank comes under RBI scanner

The Reserve Bank of India (RBI) on September 23, issued directions to Punjab and Maharashtra Cooperative Bank (PMC Bank) after an on-site inspection revealed several irregularities in the bank’s books. PMC Bank ranks among the top ten cooperative lenders in the country.

The RBI swung into action after the bank’s senior management approached the regulator last week for a resolution plan to help realise bad loans that had gone undetected for past six-seven years.

On September 27, the bank’s suspended Managing Director Joy Thomas admitted in a press briefing that loans accumulating to Rs 2,500 crore given to Housing Development & Infrastructure Ltd. (HDIL) had not only breached group exposure norms, but were also not classified as non-performing assets (NPAs) to protect the bank’s growth prospects.

For PMC Bank customers, the week started with a Rs 1,000 cap on cash withdrawal, which was later increased to Rs 10,000.

PMC Bank breached its group exposure limit and did not classify loans given to HDIL as bad loans, even as the real estate company stopped repaying them several years ago, according to Joy Thomas.

Customers can now withdraw Rs 10,000, while further relaxations can be expected after the regulator’s inspection.

9 other cooperative banks currently under RBI directions like PMC Bank

Apart from PMC Bank, the fate following nine lenders still hangs in balance. The directions date back several years, with depositors’ money locked in, mostly without any respite from RBI.

RBI initiates prompt corrective action against Lakshmi Vilas Bank

Lakhsmi Vilas Bank (LVB) has been put under the banking regulator’s watch due to weak financials, the private lender said in a regulatory filing on September 28.

The RBI initiated Prompt Corrective Action (PCA) against LVB on September 27 after an on-site inspection. The move was taken due to high NPAs, insufficient capital adequacy levels, negative Return on Assets and high leverage.

FM Sitharaman says not heard of any concerns about liquidity from bankers, NBFCs

There are no complaints of liquidity shortage in the system and near unanimity that most microfinance institutions in rural India are seeing strong credit demand, Finance Minister Nirmala Sitharaman said during a media briefing after meeting private bankers, MFIs and non-banking finance companies (NBFCs) on September 26.

RBI releases report on review of liquidity management framework

RBI has released a report on liquidity management framework submitted by an internal working group that was set up to help the central bank manage system liquidity more effectively.

The framework, if revised, will have an impact on the flow of credit to various sectors in the economy. This includes the transmission of policy rate changes to the money market rates.