Until now, the scale of NPA crisis has not impacted average bank account holders. The PMC scandal may change all that
On the face of it, the Punjab & Maharashtra Co-operative Bank Limited (PMC) scandal is much smaller than the one that the devious diamante duo of Mehul Choksi and Nirav Modi orchestrated on the Punjab National Bank. It is even smaller in scale when compared to the bad loans that have engulfed the State Bank of India, which it forwarded to the collapsed airlines — Kingfisher Airlines and Jet Airways. But given the stupendous nature of the loans involved and the modus operandi used — which meant almost all the bank’s assets were linked to a single developer that the Wadhawan family promoted, HDIL — it seems difficult to believe that such a scam could have been concealed or orchestrated to the extent of allegedly having 21,000 bogus account holders. The scale of the loans to the developer, which constituted over 70 per cent of the bank’s loan book, has meant that the Reserve Bank of India (RBI) has effectively put the bank under its guidance. It also put a cap on customer withdrawals — first to Rs 1,000 and then after mounting pressure from account holders to Rs 10,000 and then to Rs 25,000. Yet, thousands of account holders are left holding the can. Thousands of customers are eyeing lakhs of rupees of savings, for marriages, education and even houses, all of which are locked up. It even appears that before the clampdown, several high-profile account holders made massive withdrawals. This made matters worse.
Undoubtedly, the RBI could have handled matters better. The ham-handed nature of the way things were communicated by the Central bank made customers of other banks jittery. With the news of Yes Bank facing troubles, thanks to its bad loan problem, online banking channels of most banks collapsed over the festive period as customers rapidly moved to withdraw money or transfer it to what they consider “safer banks.” RBI Governor Shaktikanta Das has said that no banks are in trouble and that he would not let any co-operative bank collapse. But consumer confidence in banks is at an all-time low. To be fair, there has not yet been a “run” on the banks in the traditional sense of the word. However, the fallout of the PMC scam will be felt for a long time. One good thing is that possibly, there will be a crackdown on co-operative banks. It has been suspected that these banks, with their lax standards, have helped funnel money for politicians. It is almost certain that some big political names will tumble out of the PMC scandal, even though PMC bank managing director, Joy Thomas, is trying to take all the blame.
