PMC Bank has enough liquidity, depositors' money fully safe; HDIL sole reason for present crisis, says suspended MD

The Reserve Bank of India’s (RBI) move to take charge of one of the country’s top five co-operative banks on Tuesday brought worried depositors out in protest and sparked renewed concerns about the health of India’s troubled banking sector. Allaying fears of the depositors and customers, Punjab & Maharashtra Cooperative Bank (PMC), which is under the RBI management now, said it has enough liquidity to meet all liabilities and every penny of the public is secure.

Asserting that all its loans are fully secured, the management admitted that one large account-HDIL–is the sole reason for the present crisis leading to the regulatory action Tuesday when RBI superseded its management and placed it under an administrator for the next six months.

The regulator has also capped cash withdrawal at Rs 1,000 per customer during this period and also banned the bank from any fresh lending during this period. Though the bank’s now suspended managing director Joy Thomas did not disclose the exposure to HDIL, which he described as the largest and one of the oldest customers, he said all other accounts are safe and fully-secured. [caption id=“attachment_7404161” align=“alignleft” width=“380”]  PMC Bank. PTI photo[/caption] “We have ample assets to cover all our liabilities toward the depositors. All my loans are backed by adequate securities. It is just a question of time,” Thomas said in an interview with CNBC-TV18 on Wednesday. “All other loans are more than fully-secured and there is no need for any customer to panic,” Thomas told PTI in an interview Wednesday evening. “We have enough liquidity and back-up securities for all what we have lent. As a cooperative bank, we never do unsecured lending and our loan coverage ratio has always been 100-110 percent,” Thomas said. He said the bank has cash liquidity of around Rs 4,000 crore in the form of SLR (statutory liquidity ratio) and CRR or cash reserve ratio, while its liabilities are around Rs 11,600 crore.

Have ample assets to cover all liabilities of the depositors, says PMC Bank pic.twitter.com/4Wx3yFGLGD

— CNBC-TV18 (@CNBCTV18Live) September 25, 2019

One of the reasons for the RBI action is the highly under-reported NPAs, which according to sources are in high double-digits, while as per its FY19 balance sheet, it stood at a low 2.19 percent, which though was more than double of 1.05 percent in FY18. Thomas admitted that the problem arose because of under-reporting of NPAs from the HDIL account. The slum redevelopment company, which has landed in cash crunch, has already gone to the bankruptcy now, has been delaying payments for the past few years. “The divergence was only on HDIL. There was a difference between what we were reporting and what the actual numbers were. There was a delay on repayment for the last two-three years and we have been under-reporting that,” Thomas admitted. He, however, declined to quantify its exposure to HDIL, saying the loan is fully-secured. Explaining that the problem is the delayed repayments by HDIL, he is sure of returning to normalcy sooner than later as the loan is fully-secured and the bank is in talks with HDIL for sell of its assets and recover the dues. “We have been working with HDIL for the past many months and we know they are in advanced stages of monetizing their assets. That’s why we are saying that we will be out of the problem soon,” he said.

Describing HDIL as an old customer and the largest, Thomas said the firm has been supporting the bank for years, “when we were a single unit bank, they supported us, they also supported us when we were facing problems. When nobody was depositing even a penny with us, they had put in Rs 13 lakh way back in 1988.

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“Nearly 40-50 percent of our turnover used to come from them only. We have earned a lot of profit from them…otherwise how can a young bank like ours have grown and come among the top five,” he averred. Thomas said HDIL has been facing problems for the last three-four years after they had lost some of the projects, including key slum rehabilitation projects near the Mumbai airport and other bankers stopped lending to it. However, he exuded confidence that the bank will be out of the regulatory restrictions much ahead of the RBI’s six months period, say in two-three months. He said the focus is to safeguard the interest of small depositors as it is the festive season and they would want money. “We have already approached the RBI for increasing the withdrawal limit to Rs 15,000. We have enough liquidity to serve that demand,” Thomas said. India has more than 1,500 small urban co-operative banks that typically service small local communities in certain districts or states. Over two dozen of these co-operative banks are now under RBI administration, but PMC Bank - with deposits of 116.17 billion rupees as of 31 March—is by far the largest to be hit by such RBI measures, a Reuters report said. Depositors at co-operative banks are in a relatively higher risk zone as the supervision and administration of these entities fall under state governments and the central bank. --With inputs from agencies