As PMC crisis erodes trust in system, clients of other banks wonder if they should withdraw deposits

Will the crisis in Punjab and Maharashtra Cooperative Bank prove to be contagious? That’s the question customers of nationalised and cooperative banks were fretting about this week in Mumbai and Delhi as they wondered whether their deposits were safe.

As rumours spread furiously over social media, some customers visited their banks to seek reassurance from officials. Others began to withdraw their money from co-operative bank accounts. For some, the PMC Bank crisis had made them doubt the credibility of the entire financial system.

“There is a lot of tension in the air because of what happened with PMC and I know a lot of people who no longer trust banks with their money,” said Rajesh Soneja, who owns an electronics shop on Mumbai’s Lamington Road. He said that had begun to withdraw money in instalments from some of his bank accounts.

RBI limit

The anxieties were set off by the Reserve Bank of India’s decision on September 23 to impose severe restrictions on withdrawals from Punjab and Maharashtra Cooperative Bank after it discovered “major irregularities” in the bank’s debt management. The cooperative bank had allegedly failed to report all its bad loans.

The Reserve Bank initially told PMC Bank customers that they could withdraw only up to Rs 1,000 over the following six months. Over the next few weeks, it inched the limit up further. On October 14, it told PMC Bank they could take out Rs 40,000 over a six-month period.

The anger and despair of PMC Bank customers has driven them to organise several protests in several parts of the country, including one on October 17 outside the Reserve Bank of India office in Delhi. Amidst the consternation about whether they would get their money back, three PMC Bank customers died in Mumbai on October 16. Two of the three died from heart attacks that the relatives of the deceased men said were caused by severe stress. The third depositor allegedly committed suicide.

On Friday, a fourth PMC customer died. The family of 83-year-old Muralidhar Dhara said that he needed an urgent heart surgery but could not raise the money for it. They said that he had Rs 80 lakhs in savings locked away in the bank.

Social media rumours

Adding to the general panic was an image doing the rounds on social media of an HDFC Bank passbook noting, “In case of liquidation of the bank, DICGC [Deposit Insurance and Credit Guarantee Corporation] is liable to pay each depositor through the liquidator the amount of his depositor the amount of his deposit up to Rs 1 lakh within two months of the date of claim of the liquidator.”

HDFC Bank issued a clarification on October 16 saying that the provision was introduced in June 2017 by the Reserve Bank of India of which the Deposit Insurance and Credit Guarantee Corporation is a subsidiary.

But questions about PMC Bank’s future had sparked trepidation among customers of cooperative and nationalised banks, some of whom Scroll.in spoke to in Delhi and Mumbai.

‘Banks cannot be trusted’

Anil Mordani, 65, who has an electric cables business in Mumbai’s Lamington Road area, said he had been closely following the news about PMC Bank and had received a range of messages on WhatsApp about the possibility of some other banks shutting down too. He said that his faith in co-operative and private banks had been eroded.

“My housing society had money in Maharashtra Co-operative Bank and as the treasurer, I have now withdrawn most of the money from that account,” said Mordani. He said that he knew customers of another co-operative bank who had also withdrawn their deposits and even broken their fixed deposits despite losing interest for terminating them prematurely.

Mordani said he had consulted his chartered accountant to obtain information about various banks and try to make a considered decision about where to deposit his money.

On Thursday, he also received the WhatsApp message about the passbook HDFC noting but was not worried about it. “All businessmen have been aware for years that banks can insure only up to Rs 1 lakh of your money,” said Mordani. “But the way this information is now being spread is creating unnecessary panic.”

‘Tension in the air’

Further down Lamington Road, electronics shop owner Soneja said that he wasn’t the only person in his social circle to being to withdraw their money from their accounts in installments. “Some people may put the money in other banks that they trust more, and some people just keep the money at home,” he said.

Soneja predicted that banks would experience more problems with cash supplies in the coming months. “Already I have been seeing that banks don’t have enough money in their ATMs,” he said. “It has become impossible to withdraw more than Rs 10,000 from an ATM, and sometimes there is no money at all.”

He also claimed he did not normally give much credence to WhatsApp forwards, but lately he received messages not just about the Rs 1 lakh limit on insurance in case banks are liquidated, but also that banks may never return a depositor’s money if they shut down. “The point is that banks simply cannot be trusted anymore,” he declared.

In Delhi, cooperative banks visited by Scroll.in were deserted. Customers were scarce even as management officials were present.

One customer outside HDFC Bank in Old Delhi’s Chawri Bazar said that he was not worried despite the clarifications issued by the bank on depositors’ insured amount. “If I withdraw my money then it will be a big loss for the bank and it cannot afford to have such a situation,” said the customer, who asked to remain wished to remain unidentified.

Rumours dismissed

Officials at several co-operative banks that Scroll.in spoke to admitted that there was a sense of worry among their customers and that they received many inquiries about the rumours floating around on social media.

A staff member at Mumbai’s Grant Road branch of the nationalised Union Bank of India said that when the PMC crisis boiled over, staff at his institution had to handle approximately eight queries from worried customers every day.

“People wanted to verify rumours they had been hearing that our bank and other banks were going to shut down,” said the staff member, who did not want to be identified. However, the queries have now slowed to a trickle, he said.

At the Grant Road branch of the Central Bank of India in Mumbai, manager MK Mishra had also received several questions from customers. Our staff responds to all these queries and we have even put up clarification notices in the bank, after which customers have been reassured,” he said.

‘There is chaos’

In Delhi, however, officials at co-operative banks said that the impact of the PMC Bank crisis was being felt far less intensely. This is because the cooperative bank movement started in Mumbai – Delhi has only 16 such institutions, said Pramod Kumar Gupta, branch manager of Vaish Cooperative Adarsh Bank in Old Delhi’s Daryaganj.

Even though the provision by the Deposit Insurance and Credit Guarantee Corporation to pay out insurance of up to Rs 1 lakh to the holder of each account isn’t new, Gupta said that it created the panic among customers when it resurfaced on social media.

“No one knew about this rule before,” he said. “It is a very bad policy even though nothing of the sort has happened in the last few years.”

Another bank official in Delhi said that customers had become wary of cooperative banks. “There is chaos,” said the bank official at Bombay Mercantile Cooperative Bank in Daryaganj. “We have received some queries and it seems that people think that some big announcement like demonetisation will be made by the Prime Minister or Ministry of Finance.”