The Reserve Bank of India (RBI) has appointed AK Dixit, former general manager at Union Bank of India, as the new administrator of Punjab and Maharashtra Cooperative (PMC) Bank.
He will replace JB Bhoria, who, RBI says, is stepping down due to health reasons.
In a release, the central bank says, "While the administrator of PMC Bank and the RBI have been exploring various options for resolution of the bank, several factors such as huge losses incurred by the bank resulting in its entire net worth getting wiped out, and steep erosion in deposits continue to pose serious challenges in finding a workable plan for revival of the bank."
"The bank has also been making efforts for recovery of non-performing assets (NPAs) although the progress has been constrained because of the COVID-19 pandemic and legal complexities. Nevertheless, in the interest of the depositors, the PMC Bank and the RBI are continuing to engage with the stakeholders to explore the possibility of finding a viable and workable solution for the resolution of the bank," RBI says.
Last year on 23rd September, RBI had appointed Mr Bhoria as administrator of PMC Bank. He was the regional director of RBI for Maharashtra and Goa till 2013. But more about Mr Bhoria later.
On Tuesday, the Parliament passed amendments to the Banking Regulation Act to bring cooperative banks under the supervision of RBI, a move aimed at protecting the interest of depositors. The bill, which comes in the backdrop of the PMC Bank scam, seeks to strengthen cooperative banks by increasing their professionalism, enabling access to capital, improving governance and ensuring sound banking through RBI.
Justifying the need for the amendments, finance minister Nirmala Sitharaman said the government was able to quickly resolve the troubled Yes Bank as it was governed by commercial bank rules, but the resolution to the PMC Bank crisis is yet to be found.
Separately, the Maharashtra government is planning to auction properties of Housing Development Infrastructure Ltd (HDIL) to provide relief to PMC Bank depositors. HDIL is the biggest loan defaulter of PMC Bank.
In a written reply in the state legislative assembly, Satej Patil, minister of state for home had said that HDIL properties would be auctioned to revive PMC Bank. "...a committee appointed under the governor of the RBI is currently assessing the value of HDIL’s properties which were mortgaged with the bank, so that they can be auctioned to revive the financial institution and provide relief to its depositors." the minister said in a written reply.
Coming back to Mr Bhoria, as reported by Moneylife, his appointment on PMC Bank, however, was not the first time, he had been appointed as administrator of a bank. His previous stint as administrator was not good, even when he headed a bank that had no financial problem.
In 2014, RBI, in its wisdom, decided to place the Nashik Merchant’s Cooperative (Namco) Bank under an administrator. At that time, it was emphasised that Namco Bank was not facing any financial problem. The action related to other issues.
The Bank’s performance declined during Mr Bhoria’s tenure. According to current chairman Sohanlal Bhandari, the gross non-performing assets (NPAs) of Namco Bank allegedly increased by a whopping 40% to Rs318.67 crore during the administrator’s tenure.
Mr Bhandari told Moneylife in a telephonic interview, "the less said the better about the tenure of the administrator at our bank. After appointment of the administrator, we expected effective and prudent management at the bank.
"However, in his (Mr Bhoria's) tenure, the financial position of Namco Bank became weak. When Mr Bhoria was appointed as administrator, our bank had a gross NPA of 4.10% and zero net NPA. However, as on 31 December 2018, our gross NPAs increased by 38.38% to Rs318.67 crore while net NPA increased to over 20%."
"During Mr Bhoria's tenure, several unqualified borrowers obtained loans on inflated valuation and at higher loan-to-value ratio. A property valued at Rs1 crore was shown as valued at Rs1.25 crore for the loan purpose. In addition, the bank sanctioned a loan of 70% of this inflated value against the 50% norm that was practiced before appointment of the administrator. Mr Bhoria also pressured bank officials to sanction these inflated loans," Mr Bhandari alleged.
Mr Bhoria, however, had said, statistics do not always show clear picture, especially in banking. “During my tenure at Namco Bank, I took efforts in increase reserve funds by about Rs200 crore. You can see there is a rise in the bank’s capital to risk (weighted) assets ratio (CRAR) and reserve fund that indicate increase in strength and growth of the bank. Also on sanctioning loans, we have followed all the norms and the decisions to sanction loans were taken by the loan committee after proper scrutiny.”
RBI had appointed Mr Bhoria as administrator for one year in January 2014, after finding some lapses in management practices at Namco Bank. However, Mr Bhoria remained as administrator for about five years. He says, “The decision (to continue to have administrator) was taken by RBI. When they (RBI) asked me to step in, I joined Namco Bank. When they asked me to step down, I handed over the reins to the new board of directors.” (Read: PMC Bank Adminstrator JB Bhoria’s previous stint at Namco Bank Saw a 40% Jump in NPA)