Congress fears cascading effect of PMC Bank on public sector banks

New Delhi: The Congress on Friday said the RBI action against the Punjab and Maharashtra Cooperative Bank of Mumbai is a systemic failure rather than an individual bank failure. Its spokesman Prof Gourav Vallabh told a press conference here, "It is not a one bank, it is going to have a cascading impact. It is not a Co-operative Banking Sector only, it is going to affect other Public Sector Banks also."

He said his fears stem from the fact that there are as many as 76 scheduled cooperative banks operating in India and their number is not only much higher than the total number of nationalised and private banks but they also form a significant part of the country's financial system.

The cooperative banks' failure is automatically bound to hit the overall sentiments of the financial services industry, with a cascading effect on the entire financial structure of the country, he said adding that "trust is itself a major factor under which the banks operate and if the regulator itself breaks this trust, there is going to be a major fallout of this."

He demanded immediate removal of withdrawal limit, allow customers withdraw their money held in deposits in special and emergency cases and the housing societies be allowed to use their funds parked in this bank. He also demanded registration of an FIR against the bank directors to make them accountable before they flee to foreign locations.

Prof Vallabh noted the shocking revelation that a large number of directors on the board of the bank have close proximity to the BJP, including Sardar Ranjit, who is son of Tara Singh, a 4-term MLA from Mulund. He said it is alleged that flouting the RBI norms, the bank was granting loans to defaulters despite their inability to pay back while huge NPAs were mysteriously under-reported in its accounts.

First the RBI limiting withdrawals to Rs 1,000 per depositor and increasing it very next day to Rs 10,000 only suggests that it is clueless as to what the real issue is, Prof. Vallabh said.

He also asked the RBI to take full accountability for failure of the bank as well as its likely cascading effects on the banking system in the country. Has RBI acted in haste or for the safety of the depositors' hard-earned money, he asked, asking it to ensure safety of the money. The professor also asked the RBI to emphatically state that this crisis is not going to affect the entire financial system. He wondered what the RBI was doding as the regulator despite the clearcut guidelines on its very strong role in handling the operations of the financial system, including the cooperative banking system.

He pointed out that the RBI is the custodian of the banking sector as well as the entire financial sector and it has significant role over the cooperative banks as per the Master Guidelines. In the light of the irregularities found by the RBI, he said the tough part to accept is that despite the controls supposed to be robust, more than Rs 11,000 crore of depositors' money is in jeopardy as it may be wiped out since only 29% of it is insured. Vallabh said all sorts of doubts are being expressed about the RBI's snap decision. Is it trying to save the deposits of a few large depositors and is this the reason for a knee jerk reaction, he asked.

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