As citizens, there may be a valuable lesson for us to learn from this.

The recent removal of 2000 rupee notes may have little impact on the economy as they only make up a small portion of cash in circulation (10.8%). However, depositing these notes is a burdensome and unproductive for the public and bank staff. It baffles me why the central bank and Government would even consider doing this, as the notes could be gradually removed without causing immediate harm. It feels like Prime Minister Modi is giving us citizens homework to do.

The Reserve Bank of India (RBI) recently announced that the total value of banknotes in circulation has decreased from ₹6.73 lakh crore to ₹3.62 lakh crore, which accounts for only 10.8% of the total Notes in Circulation. This presents a significant challenge for the RBI. To help with the exchange of ₹2000 banknotes, the RBI has set up a deposit facility. However, it is crucial to conduct a thorough analysis to understand the scale of the problem, the underlying assumptions, and the significant effort required to successfully address this task within the limited timeframe.

The main goal is to deposit and retrieve ₹3.62 lakh crore within the given timeframe.

Assumptions:

● Each individual is allowed to deposit up to ₹20,000 per visit.

● The deposit process consumes approximately 10 minutes per visit.

● Banks operate for 270 working days a year.

● An average workday consists of 8 hours.

Required Effort: Based on our analysis of the assumptions, it has been determined that depositing ₹3.62 lakh crore would require around 18.1 crore trips, each taking an estimated 10 minutes per deposit. This amounts to a total of 3,017 crore work hours. With only 122 working days left (30 Sept 2023) until the deadline. A workforce of roughly 3,867,431 Bank staff members would need to be engaged to achieve this.

There may be disagreements about the specific number and assumptions, but altering them would still result in a significant amount of unproductive work. We must consider the opportunity cost, as the staff involved in this task would have to disengage from more productive work. Furthermore, we have yet to assess the impact on those who travel to the bank to make deposits, considering their opportunity cost. This exercise is ultimately a waste of resources and causes a massive loss of productivity.

It would be advisable for the RBI to increase the deposit limit, extend the period, or abandon it altogether, as the economy is still recovering from crises such as inflation, external pressures, weak local demand, and struggling MSME sectors.

Appendix

Calculations:

● Total trips required: ₹3.62 lakh crore / ₹20,000 = 18.1 crore trips.

● Total hours required: 18.1 crore trips * 10 minutes per trip = 3,017 crore work hours.

● Total working hours available per staff: 8 hours per day * 122 days = 976 hours.

● Staff required: 3,017 crore work hours / 976 hours = 3,867,431 staff members.

The author a financial professional with a master’s degree in economics. He is interested in the arts, academia, and social issues related to development and human rights.

Also Read:

Part 1: “Demonetisation: Modi’s Himalayan Blunder and its Lingering Consequences”

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The post Addressing Mammoth Task of Depositing ₹3.62 Lakh Crore (2,000 Rs Notes) : Scale, Assumptions & Effort (Part 2) appeared first on SabrangIndia.

With many government institutions stepping up and issuing some relief measures for the people, the Reserve Bank of India (RBI) has also issued a statement to make people’s lives easier. In order to mitigate the impact of the outbreak and rapid spread of the COVID-19 epidemic on Indian economy, the RBI announced that all banks and Non-banking Financial Companies (NBFCs) may allow a 3-month moratorium on payment of EMIs of terms loans. Moratorium is a legally authorized period of delay in performance of legal obligation or the payment of a debt.

There is also relief for people availing cash credits and over draft facilities, basically businesses. The RBI has allowed a deferment of 3 months on payment of interest on such working capital facilities provided by banks. The accumulated interest is to be paid after expiry of deferment period.

RBI also reduced the cash reserve ratio in banks. The statement reads, “As a one-time measure to help banks tide over the disruption caused by COVID-19, it has been decided to reduce the cash reserve ratio (CRR) of all banks by 100 basis points to 3.0 per cent of net demand and time liabilities (NDTL) with effect from the reporting fortnight beginning March 28, 2020.”

“Another dispensation has been allowed to banks, “Furthermore, taking cognisance of hardships faced by banks in terms of social distancing of staff and consequent strains on reporting requirements, it has been decided to reduce the requirement of minimum daily CRR balance maintenance from 90 per cent to 80 per cent effective from the first day of the reporting fortnight beginning March 28, 2020. This is a one-time dispensation available up to June 26, 2020.”

Some other measures taken by RBI include reducing repo rate by 75 basis points to 4.4% and reverse repo rate reduced by 90 basis points to 4%. RBI will conduct auctions of Targeted Long Term Repo Operations of 3 year tenure for a total amount of Rs. 1 Lakh crore. These measures are expected to inject liquidity worth Rs. 3.74 lakh crores. The RBI Governor assured people that banking system is safe and urged them not to resort to panic withdrawal of funds.

The RBI pree release can be read here

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The post RBI allows 3-month moratorium on EMI payment on term loans appeared first on SabrangIndia.

The Reserve Bank of India (RBI) on Monday announced that banks would not be required to maintain the 4 percent Cash Reserve Ratio (CRR) for five years on their deposits for an amount equivalent to loans given out to the housing, auto and MSMEs between January 31 and July 31. The move is set to help lenders lower the costs of deposits in turn transferring benefits to the customer.

What is Cash Reserve Ratio (CRR)?

The Reserve Bank of India or RBI mandates that banks store a proportion of their deposits in the form of cash so that the same can be given to the bank’s customers if the need arises. The percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio. The cash reserve is either stored in the bank’s vault or is sent to the RBI. Banks do not get any interest on the money that is with the RBI under the CRR requirements, explains Financial Express.

The RBI takes stock of the CRR in every monetary policy review that is conducted every six weeks. The CRR helps the RBI maintain a desired level of inflation and control the money supply and liquidity in the economy. A lower CRR is better as it allows higher liquidity in banks, allowing more investment and lending. A high CRR can negatively impact the economy as lesser availability of loanable funds slows down investment thereby reducing the supply of money in the economy.

Details of the current CRR relief

The RBI announced that the special lending window for such loans would open on February 14, 2020 for and said that it would allow relaxations on these three productive sectors as they could have “multiplier effects to support growth impulses”.

The economic research wing of the State Bank of India (SBI) this move of the SBI would release Rs. 4,000 crore for six months as extra credit to commercial banks, The Telegraph India reported.

“Exemption of CRR maintenance for all additional loans given for retail loans for automobiles, residential housing, and loans to MSMEs is positive for banks. It will also help to lower the cost of funds,” SBI chairman Rajnish Kumar said.

Anuj Puri, Chairman, Anarock Property Consultants told The News Minute that though the move would help ease out the time for maintaining and managing cash flows for cash-strapped developers and help them to complete several projects, it would not address the issue of continuing low demand.

The MSME sector plays an important role in the growth of the Indian economy and contributes over 28 percent of the GDP and employs about 11 crore people. The RBI said the restructuring of the borrower account has been extended by further one year to March 31, 2021.

Deutsche Bank’s Kaushik Das said, “I think rates can still go lower, but what RBI has done today it has created an enabling kind of situation so that MSME and all these sectors can grow at a faster pace, credit growth can be a little higher than what we have had in the past.”

Objectives of the CRR and how it helps during inflation

The CRR serves two major objectives.

The first – Since a part of the bank’s deposits are with the RBI, the security of that amount is ensured. This makes cash to be readily available when the customers want their deposits back.

The second – The CRR helps in controlling inflation. During times of high inflation, the CRR is increased so that banks keep more money with the RBI in its reserves and have less money to lend further.

When the cash reserve ratio is minimised, commercial banks will have more funds, thus increasing the money supply of the banking system. In this way, inflation can be directly controlled by means of increasing the CRR rate and thereby restricting the ability of commercial banks to lend money.

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Sabrang India had reported on January 16 that two nationalised banks had added the “NPR letter” to list of documents acceptable for KYC of customers. This was done after the RBI issued a directive to banks, a letter from NPR containing details of name and address is to be accepted by banks for opening a bank account or to fulfil any other KYC norms. The Central Bank of India issued a notification to this regard but later also issued a clarification stating that NPR letter is not a mandatory document.

Yet, it has led to panic in a village near Thoothukkudi in Tamil Nadu. Soon after the notification was issued by the local branch, hundreds of customers in Kayalpattinam village, many of them belonging to the Muslim community, reached the bank branch to withdraw their money.

Among the many people who withdrew their money was a government employee as well who said that she withdrew Rs. 50,000 from her account and that many customers of the bank had panicked.  “Since we had the experience of demonetisation that forced us to stand in the queue for so many days, every customer who was panicked reached the bank. Bank officials were helpless as they couldn’t convince us why RBI included NPR in the list before it is even updated in most states,” she said.

One of the officials of Central bank of India said that similar reports had come in from few other branches. He also said that community leaders were approached to convince the people and to reassure them. “We approached community leaders and jamaat committees of Kayalpattinam to convince our customers as a large amount was withdrawn in less than three days. We do not even know if we could convince all customers and get them back to our branch,” the official said.

Community leaders managed to spread some awareness in their community and the situation seemed to be under control by Tuesday but by Monday evening the customers had already withdrawn Rs. 1 crore from their accounts. The official further said that no amount of convincing worked for the customers despite of community leaders stepping in. He said that most of their customers were Muslims and many of them had almost emptied their bank accounts.

However, this is not the case with all nationalised banks. Bank of Baroda, for example, has not issued a notification to this regard as of yet because “it doesn’t make sense in adding something that doesn’t exist,” said a senior officer of the bank.

The Assistant General Manager of Public relations at Central bank of India spoke about the issue and said that what happened  in the village in Tamil Nadu was extremely unfortunate. He further explained that Aadhar card is proof enough and in case of PAN card, any other documents can be used for address proof like passport, voter identity card, driving licence, National Rural Employment Guarantee Act card. He said the NPR letter was merely added to this list of documents in case somebody possesses that document.

The point put forth by the Bank of Baroda official was also made by Sabrang India, as to why a document is added to the list of Officially Valid Documents when it does not even exist.

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The post TN: NPR letter as KYC document causes panic, people withdraw money appeared first on SabrangIndia.

The Hindu reported that the Reserve Bank of India (RBI) issued a notification in March 2018 permitting long-term visa holders belonging to minority communities from Afghanistan, Bangladesh or Pakistan, to purchase immovable property subject to certain conditions.

The RBI that controls the currency, banking system and monetary policy, issued Notification No. FEMA 21(R)/2018-RB on March 26, 2018 under the provisions of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018. Point 7 of the notification is reproduced below:

Newsclick reported that subsequently, the same set of minorities from the same countries, were allowed to open Non-Resident Ordinary (NRO) accounts to manage their incomes earned in India.

These moves are significant, not only because they were undertaken in the run up to the CAA, but also because a federal institution, that is purportedly autonomous and not expected to display any bias, religious or otherwise, clearly issued a notification that specifically left out Muslims. Considering that the Modi regime had introduced CAB in 2016, it cannot be ruled out that the RBI was in the know as the notification specifically names the communities and countries mentioned in CAA.

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The post Did RBI help set the stage for CAA? appeared first on SabrangIndia.

Last week, Karnataka Bank, reported a fraud of Rs. 40.39 crore in the credit facilities to Hanung Toys and Textiles Ltd, on account of diversion of funds, which has been declared a non-performing borrowing account, the Deccan Herald reported.

Hanung Toys and Textiles Ltd dealing with the bank since 2008 had availed various credit facilities under consortium arrangement since 2008 where Karnataka Bank was one of the member banks.

The company owes Rs. 2,300 crore to a consortium of 15 lenders led by state-own Punjab National Bank, which alone has an exposure of Rs. 599 crore.

“On the basis of forensic auditor’s report submitted to the consortium, some of the member banks have reported to the Reserve Bank of India (RBI) regarding fraud in the borrowing account.

“In line with the Consortium decision, Karnataka Bank has reported to RBI a fraud amounting to Rs 40.39 crore in the credit facilities extended earlier to the borrowing account, on account of diversion of funds,” Karnataka Bank said.

The bank said that Hanung Toys and Textiles had been classified as a non-performing asset (NPA) in July 2015 and had been fully provided for and as such, no negative impact on the bank’s profitability at present.

Several other banks too have declared Hanung Toys and Textiles Ltd to be a wilful defaulter.

Hanung Toys and Textiles Limited

Hanung Toys is promoted by Ashok Kumar Bansal. He has been an IKEA supplier for 15 years and his company had been in the news for a hefty order worth Rs. 600 crore by the Swedish retailer in 2007.

Its toy manufacturing units are set up in the Noida Special Economic Zone (SEZ) and its production units include facilities in Roorkee, Bhiwandi and Noida set up to make toys and home furnishings.

In 2018, PNB had taken Hanung Toys and Textiles Ltd to the bankruptcy courts for unpaid loans. The PNB-led consortium of lenders had collectively loaned the amount to the toy-maker around three years ago in debt restructuring for around 1,800 crore.

In November 2019, authorities detained Ashok Kumar Bansal and his wife Anju Bansal, who were on their way back from Dubai, at the Delhi Airport following a lookout notice issued by the Punjab National Bank.

The Free Press Journal reported that a corporate debt restructuring plan crafted by the company four years ago failed to take off as Ashok Bansal, the Chairman couldn’t bring in his share of equity which stood at Rs. 82 crore which led to an increase in outstanding dues to Rs. 2,300 crore.

Wilful defaulter

In November 2019, the Reserve Bank of India (RBI) released a list of top 30 wilful defaulters in response to an RTI application filed by The Wire. The application came in four years after the Supreme Court had directed the RBI to disclose a list of wilful defaulters in India. While MehulChoksi’sGitanjali Gems stood at the top with a default amount of Rs. 5,044 crore, Hanung Toys and Textiles showed a default amount worth Rs. 949 crore.

The corporate debt restructuring (CDR) cell in 2015 had pointed out that according to data, every three cases approved for debt repair under the CDR mechanism had failed and exited the cell. In July that year, Hanung Toys and Textiles Ltd had exited the cell after failing to implement the CDR package.

The reasons for this, sources told Livemint were that failures occurred mostly due to the promoter’s inability to bring in his share of contribution apart (as was in the case of Ashok Bansal) from the company’s inability to meet business projections.

Karnataka Bank fraud list

Apart from the recent fraud reported by the bank in the case of wilful defaulting by Hanung Toys and Textiles Ltd, the bank in November had reported a fraud of Rs. 13.36 crore on account of diversion of funds, in the working capital facility extended to SRS Finance Ltd.

In 2018, it had reported a fraud totaling Rs. 86.47 crore in loans extended under consortium agreements to MehulChoksi’sGitanjali Gems. In a BSE filing it said, “The bank has reported a fraud to Reserve Bank of India amounting to Rs86.47 crore in the fund based working capital facilities extended to Gitanjali Gems Limited on account of non-realization of exports bills and diversion of funds.”

This year, the RBI had slapped a fine of Rs. 4 crore on the bank for violating regulatory norms. The charge was levied due to the failure of the bank with regards to the delay in implementation of four of the Swift related operational controls.

In July this year, the bank launched a web tool named VASOOL SO-Ft (VASOOL SO FAST) to digitalise the NPA recovery process.

The bank has reported a 5.3 percent year-on-year decline in its net profit at Rs. 105.91 crore for the quarter that ended in Sept 30, 2019. Even with the regulatory disclosures on bad loans, the bank was working to keep its NPAs below five percent. CEO & MD MAhabalaeshwara MS had told Business Standard last year, “There was actually no pain in the sense that we have exposure to some corporates through the consortium. With the change in NPA recognition norm, we had to recognise a few of those accounts as NPA because of default by these groups on loans from other banks. We took this opportunity to clean up our balance sheet and make adequate provisions.”

This year, the percentage of its NPAs rose to 4.78 percent against 4.66 percent in the same quarter last year, with values standing at Rs. 2,594.27 crore this year against Rs. 2,371.62 crore last year.

NPAs haunting Indian banks

In response to an RTI application filed by CNN-News 18, the Indian banking system, in the past three years has lost Rs. 1.76 lakh crore for writing off non-performing loans to 525 defaulters, with each of the defaulters owing Rs. 100 crore or more.

The responses to the RTI showed that there had been a constant increase in the amount written off by commercial banks since 2014 – 15 with the sharpest upsurge in 2017 and 2018, post demonetization.

In 2015, loans to the tune of Rs. 40,798 crore were written off. This number increased to Rs. 69,976 crore in 2016, Rs. 127,797 crore in 2017 and Rs. 217,121 lakh crore in 2018.

Newsclick reports that the write-offs are in accordance with an RBI directive that had asked the scheduled commercial banks to come clear on the amount to be written off and set the accounts straight. These write offs simply meant the uncollectible debt.

The State Bank of India (SBI) had written off the highest amounts of such bad loans, followed by PNB, IDBI, Bank of India, Corporation Bank, Bank of Baroda, Central Bank of India, Axis Bank and ICICI Bank.

After the Punjab and Maharashtra Cooperative Bank (PMC) Bank scam worth over Rs. 6,000 crore rocked the country, political interference has emerged as one of the main obstructions in clearing up sheets and restoring the health of banks. Though the RBI has taken steps in the right direction – taking wilful defaulters to insolvency courts, will it actually be able to pull up big ticket defaulters like Hanung Toys or Gitanjali Gems by staying autonomous and out of the unholy nexus between the government and the corporates?

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The post Karnataka Bank reports fraud of Rs. 40 crore appeared first on SabrangIndia.

In these six years, the year 2017-18 saw the most waivers, reaching 12% of the gross fiscal deficit (total expenditure in excess of income) in seven of these states–Andhra Pradesh, Telangana, Tamil Nadu, Maharashtra, Uttar Pradesh, Punjab and Karnataka. Altogether, they provided nearly Rs 49,000 crore in their respective budgets for loan waivers during 2017-18.

While loan waivers for highly indebted farm households can “free up lines of credit enabling them to make new investments”, the waivers “do impact the credit flow to agriculture” and create a “moral hazard” whereby borrowers default strategically in anticipation of a loan waiver, regardless of whether they will benefit from the waiver or not, noted the internal working group.

As a result, non-performing asset (NPA) levels in states that announced loan waivers showed an increase, while most other states either showed a decrease or no change.

The internal working group was created to understand the reasons for regional disparity in agricultural credit, and to suggest workable solutions. It recommended that centre and state governments must evaluate the “effectiveness of current subsidy policies” for agri inputs and credit to make agriculture a viable and sustainable sector.

Extent of waivers

Farm loans are justified “on social welfare grounds with the Government citing urban-rural divide in growth, social unrest and farmers’ suicides as the justifications for the national ADWDRS [Agricultural Debt Waiver and Debt Relief Scheme, 2008] programme,” the report said.

The loan waivers in the six years are 24 times the Rs 10,000 crore waived by the Centre in 1990 (Rs 50,600 crore at 2016-17 prices using the GDP deflator) and nearly five times (Rs 52,500 crore) the loans waived in 2007-08 (or Rs 81,200 crore at 2016-17 prices using the GDP deflator), the study noted.

Source: Report of the Internal Working Group to Review Agricultural Credit (September, 2019)

In the six years to 2019-20, nearly 64% or Rs 1.5 lakh crore has been allocated in the 10 state governments’ budgets for waivers. In 2017-18, this accounted for nearly 12% of seven state governments’ gross fiscal deficit. The deficit dropped by 4.2 and 5.3 percentage points in 2018-19 and 2019-20, respectively.

The increase in the share of farm loan waiver in a state’s expenditure “could potentially depress the state governments’ capital expenditure in agriculture” and “the deferment of budgetary provisions to meet the expenditure towards the announced loan waivers result [in an] increase in NPA levels”, the report noted.

State-Wise Agricultural Sector NPAs in 2016-17 And 2017-18

Source: Report of the Internal Working Group to Review Agricultural Credit (September, 2019)

Size of the bubble is based on relative share of the state in agriculture credit outstanding in 2017-18. Bubbles coloured red denote the states that announced loan waivers in 2017-18; bubbles coloured yellow denote the states that announced farm loan waiver in 2018-19.

Nearly 41% of the Rs 2.4 lakh crore waived was in 2017-18, including in Punjab, Maharashtra, Karnataka and Uttar Pradesh.

Low farm incomes

About 70% of rural households depend primarily on agriculture, and nearly 86% of India’s farmers are categorised as “small and marginal”, meaning they own less than two hectares–the size of 2 football fields–according to the agriculture census 2015-16, IndiaSpend reported on January 28, 2019.

Agricultural and rural distress have peaked in the Indian economy in recent years, with farmers staging massive protests to demand better and remunerative farm prices. One of the promises made by the ruling Bharatiya Janata Party was to double farm incomes by 2022.

“Like loan waiver, this [doubling farm income] might also take the easier route of direct payments as already witnessed in some states,” Seema Purushothaman, faculty at the school of development in Azim Premji University and an expert on agriculture, told IndiaSpend.

“Addressing the availability of land for cultivation itself could address the issue in many parts of the country,” Purushothaman said, explaining that land ownership helps families avoid farm distress and escape poverty.

As for farm prices, they depend at least partly on the Centre’s approach in international trade and politics, Purushothaman said. By the time small landholders make cropping changes in response to trends in global trade, markets have entered newer cycles.

Indebtedness and distress

Nearly 70% of India’s 90 million agricultural households spend more than they earn on average each month, pushing them towards debt, a primary reason in more than half of all suicides by farmers nationwide.

Low levels of absolute income and disparity between farmers and non-agriculture workers is a factor in the emergence of agriculture distress, noted a March 2017 NITI Aayog study.

Farm income per cultivator was 34% of the income of a non-agriculture worker in the early 1980s, which fell to 25% in a decade to 1993-94, the study noted. Although there was a slight improvement in the eight years to 2011-12, it showed “no change over the 1983-84 level”.

Further, real income per cultivator grew 3.4% per year in over two decades to 2015-16, but for doubling farmers’ real income (income adjusted for inflation) over the base year of 2015-16, farm incomes would have to grow annually at 10.41%, the NITI Aayog study noted.

By contrast, farm income growth for the October-December 2018 quarter was the lowest in 14 years, The Indian Express reported on March 3, 2019, at 2.04%.

Although income mobility improved country-wide in the seven years to 2012, the progress was unequal between states, and the likelihood of children pursuing the same occupation as their fathers declined for those employed in the low-productivity agricultural sector, IndiaSpend reported on July 18, 2019.

While average monthly expenditure for all households in rural India was Rs 6,646, agricultural households–that is, households that received value of produce in excess of Rs 5,000 from agricultural activities–reported 15% more expenses compared to non-agricultural households (Rs 6,187), IndiaSpend reported on September 24, 2019, based on the All India Rural Financial Inclusion Survey 2016-17.

Non-performing assets increase 

While most states that did not announce farm loan waivers have “shown either no material change in their NPA level or have actually registered a decline between 2016-17 and 2017-18” (with the exception of Bihar, Odisha and Haryana), the NPA levels of all states that announced farm loan waivers in 2017-18 and 2018-19 went up.

The RBI described this as a “moral hazard”, suggesting that loan waivers encourage defaults among beneficiaries and non-beneficiaries.
However, farmer rights activists and researchers draw a parallel with corporate loan waivers, suggesting that farmers are unfairly singled out.

The entire agriculture sector owed the banking system the same amount (Rs 7.7 lakh crore) as borrowed by the top 10 Indian corporate borrowers, IndiaSpend reported on February 18, 2019.

“NPAs may have increased because the states have written off farmer loans, but I wonder why the RBI does not say the same of the corporate NPAs?” said Devinder Sharma, an agricultural expert, to IndiaSpend. “Farmers and corporates borrow from the same banks, but the economic thinking on both are different. This sort of discrimination against agriculture must end.

The RBI should refine its approach, and should not make state governments responsible for waivers, Sharma said. There should be a uniform policy where, like the corporate write-offs, farm loan waivers should also be a responsibility of the bank.

Kerala’s loan-to-output ratio three times national average

The all-India average loan-to-output ratio–the value added compared to the agriculture loan provided–was 0.32. Eleven states’ ratios were higher, with Kerala’s being the highest at 0.90 and West Bengal’s the lowest at 0.09.

Although Rajasthan, Bihar and Uttar Pradesh have a ratio above the national average, they do not receive enough credit for crop input requirements, possibly “due to higher share of low value crops in their overall crop output”.

Further, agricultural credit in Kerala and Tamil Nadu was nearly 180% of the states’ agriculture gross domestic product in 2015, 2016 and 2017, “indicating the possibility of diversion of credit for non-agricultural purposes”.

“There are people who avail crop loans or agriculture gold loans at special interest rates just by producing the land ownership documents, though the concerned piece of land may either be cultivated by someone else or may be lying fallow,” said Purushothaman.

Analysts have previously commented on the diversion of farm loans towards large corporates that have interests in agri-business, as in this May 26, 2019 report in The Hindu, which pointed out that farm credits were increasingly cornered by agri-businesses, away from actual cultivators, between 2000 and 2007 in Maharashtra. “The number of loans of less than Rs 50,000 are slashed by 50%, while the number of loans of over Rs10 crore to Rs 25 crore doubled or even trebled,” P Sainath, founder editor of People’s Archive of Rural India, wrote. 

(Paliath is an analyst with IndiaSpend.)

Courtesy: India Spend

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Image Courtesy: MSN.com

Frantic cash withdrawals by a few large depositors of the now paralyzed Punjab and Maharashtra Cooperative Bank in the third week of September, apparently following a whistleblower leak, prompted the RBI to put curbs on the troubled bank, a person aware of the matter reported. A report in Mumbai Mirror lays this out.

The withdrawals that started on September 19, amounted to more than 5% of the total deposits on some days, a person on the condition of anonymity said.

The identity of the depositor (or depositors) withdrawing these quantum deposits could not be ascertained and will be disclosed once the RBI completes its inspection.

The whistleblower report has detailed the massive misreporting of NPAs by the bank, primarily because of huge exposure to crippled developer HDIL that owes around Rs 6,500 crore to the bank-as much as 73 percent of its total loan book–as per the whistleblower and also its suspended MD Joy Thomas’ admission to the RBI.

Confession Letter

The confession, in the form of the letter came after a board member leaked the actual balance sheet details to the RBI. The whistle-blower approached the regulator and provided information about financial irregularities and the real estate company’s loans not being classified as non-performing since the last two-three years, despite defaults on repayments.

MD Joy Thomas wrote a four-and-a-half page letter to the regulator giving details of how he, along with six others, including a few board members and Chairman Waryam Singh, were sanctioning loans to HDIL.

Thomas said in his letter that these large accounts missed the notice of statutory auditors as they were checking only for incremental advances and scrutinized only those accounts, which were shown to them.

In a press conference last week, Thomas said the bank’s exposure to HDIL and its related entities was to the tune of ₹2,500 crores and that there was a delay in repayments by the group since the last two-three years.

But the letter said that the bank’s actual exposure to the bankrupt real estate developer is over ₹6,500 crore—four times the regulatory cap or a whopping 73% of its entire assets of ₹8,880 crore.

The letter said the cooperative bank was using fictitious accounts to evade RBI’s regulatory scrutiny during its annual inspection.

In the press conference, Thomas said, the exposure was not reported during the past six-seven years and the management came clean to RBI on September 19 during a meeting with RBI executive director Rabi Mishra.
 
Thomas also said the bank sanctioned a loan of ₹96.5 crore to the group so that they could repay Bank of India and avoid bankruptcy. He added that this loan was, however, not approved by the board of the cooperative bank.

“The stressed legacy accounts belonging to this group were replaced with dummy accounts to match the outstanding balances in the balance sheet. As the loans were mentioned as loans against deposits and were of lower amounts, they were never checked by RBI,” the letter read.
 
“I’ll kill myself outside the RBI building”

These words of Satinder Singh must reverberate through every corner of the country. By giving to access to their savings, the RBI has robbed the people of their basic human rights.

Satinder Singh, 42, the son of a taxi driver who had transcended his humble origins through sheer hard work, sees his savings of Rs. 2.6 crore under lockdown.

Singh, an NRI who works as a dynamic positions operator in the oil rig industry and is currently out of the country, doesn’t know how he will face his parents when he returns. He says they know that the bank is in trouble, but don’t know that the whole family faces doom if the bank doesn’t repay their money. Singh, who was also supposed to schedule a knee replacement surgery for his ailing mother, doesn’t know what answer to give her.

Singh and his family chose PMC Bank as their banking partner because of its convenient timings and because they liked the professionalism of the staff and the way they treated their customers.

Singh has a salary account with Axis Bank with the help of which he may just scrape by. But what about the less fortunate who do not?
72 year-old Dhapu Jain and her daughter-in-law Priyal had invested a total of Rs. 1 lakh in three fixed deposits. Outside the PMC Bank, screaming at the officials she said, “I should kill her and end my life too! How do we survive when all our money is taken away from us?”
Mohan Jain who exchanged tattered notes for a living for 40 years only recently began saving up money. With all of his FDs locked up he has no idea what to do next. He and his family have not been able to eat anything since the news of the clampdown on the bank.

The Mumbai Police on Monday filed a case against the ousted management of PMC Bank and the promoters of HDIL. The Economic Offences Wing (EOW) has formed a Special Investigation Team (SIT) to probe the matter. The first information report (FIR) has been filed under sections 409 (criminal breach of trust by a public servant or banker), 420 (cheating), and 465, 466 and 471 (related to forgery) of the Indian Penal Code along with 120 (b) (criminal conspiracy).
 
Related
RBI puts Mumbai based PMC under restrictions, Chaos reigns outside Bank’s Branches
Disaster Day for PMC Account Holders: Acute Customer Distress on Twitter
 
 

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• RBI denies reports regarding closure of 9 banks false
• A viral message on social media said RBI is planning to shut nine commercial banks
• The fake message spread online after RBI cracked the whip on PMC bank

The Reserve Bank of India (RBI) has clarified in a statement today that social media rumours regarding the closure of some commercial banks are false.

A message, which says RBI is planning to close nine banks permanently, went viral on social media and resulted in panic among public in the backdrop of the top bank’s actions against Punjab and Maharashtra Cooperative (PMC) Bank on Tuesday. However, RBI in a statement rejected rumours about closure of nine banks–Corporation Bank, UCO Bank, IDBI, Bank of Maharashtra, Andhra Bank and Indian Overseas Bank.

“Reports appearing in some sections of social media about RBI closing down certain commercial banks are false,” RBI said in a tweet.
 

Finance Secretary Rajiv Kumar called the rumours about RBI closing shutters on some banks “mischievous” and that there is “no question of closing any public sector bank”.

“There are mischievous rumours on social media about RBI closing some banks. No question of closing any public sector bank, which are articles of faith.

Rather govt is strengthening PSBs with reforms and infusion of capital to better serve its customers,” Kumar said.

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Sabrangindia has a video that may be viewed here.

A hapless citizen said, “PMC Bank stops functioning, people crying outside bank branches, Kandivali (Charkop) branch a business man’s cheque of 10 lakhs got credited today and bank shut operations!!! He fainted as he had to make payment today to his supplier, Very bad state”

The Reserve Bank of India has placed the bank under restrictions, suddenly disallowing the bank from conducting carrying out any kind of business transactions on Tuesday. This has sparked a state of panic among the banks depositors and sent shock waves in city trading community which uses this bank for their requirements.

Chief General Manager of the RBI, Yogesh Dayal said that as per the RBI directions, depositors cannot withdraw more than Rs 1,000 of the total balance in their savings/current/other deposit accounts. That this move has taken place without any prior notice raises serious questions over customer confidence.

The bank has been barred from granting, renewing and loans and advances, make any investments, accept fresh deposits, etc. without the prior written approval from RBI.

In a statement, the central bank has said that the issue of the directions shouldn’t be constructed as a “cancellation of a banking licence by the RBI”. And that it will continue to undertake banking business with restrictions until further notice/ instructions. Reportedly the RBI may consider these directions depending upon circumstances.

In response, the RBI said that it was exercising its powers vested in it under the Sub-section (1) of Section 35A of the Banking Regulation Act, 1949 read with Section 56 of the said Act. PMC Bank had deposits and advances aggregating ₹11,617 crore and ₹8,383 crore, respectively as at March-end 2019.

The Bank is a multi-state scheduled urban co-operative bank with its area of operation in the States of Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh and Madhya Pradesh. It has 137 branches.

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