The Dangerous ‘Bail-In’ Proposal by PMC Bank’s Rich Depositors
On Friday, 11th October, Mumbai Mirror, a local tabloid, published an exclusive report claiming that 200-odd ‘big depositors’ of the failed Punjab and Maharashtra Cooperative Bank (PMC Bank), which had stringent regulatory restrictions imposed on it, have come forward with a bizarre proposal. They have promised to maintain an untouched deposit of Rs5 crore each, if the Bank was allowed to resume operations and start to function normally. 
 
The paper projected this as a brilliant new effort to 'save' the bank and said that it has the support of the administrator appointed by the Reserve Bank of India (RBI). The decision was apparently taken at a meeting of 30 big depositors at the Dadar Gurdwara.
 
It is important to understand and analyse the implications of such a weird proposal. In a nutshell, large depositors are coming forward to help salvage/revive the Bank. On hearing just the basics of it,  MG Bhide, former chairman of Bank of India (RBI) and former board member of the Deposit Insurance and Credit Guarantee Corporation of India (DICGC) spontaneously exclaimed - this is a ‘bail in’.  
 
Effectively, the depositors are offering to ‘bail in’ the bank, while smaller depositors get back their money. 
 
This “bail in” is slightly different and with dubious portends for Indian bank depositors in general. ‘Bail-in’ of banks by their depositors is a highly controversial and contentious proposal which the government of India has been trying to push, in line with an international commitment at the G-20 summit.  
 
A bail-in, as opposed to a ‘bailout’ by the government, involves converting depositors’ funds into equity, so that the bank shores up its capital and continue operations. If the bank survives and is able to turn around, the rise in equity prices may allow the depositors to profit.
 
In PMC Bank, this proposal to retain deposits will only yield Rs1,000 crore. It is not clear how that would be enough to revive the Bank, when the capital is eroded, the dubious loan extended to the HDIL group is anywhere between  Rs4,500 crore to Rs6,500 crore and it is unclear what extent of the other loans are recoverable. 
 
In fact, such dangerous kite flying, which reportedly has the approval of the RBI-appointed administrator, holds out false hope to depositors, while the banking regulator itself has remained resolutely silent since 23rd September. 
 
On that day, its draconian order to limit withdrawals to Rs1,000 triggered blind panic among depositors. RBI has since increased the limit twice while offering no indicator whether the decisions were driven by political pressure at election time or based on its financial assessment of the banks loans and assets. 
 
The bigger worry here that the finance ministry, will use the PMC Bank example as an example of how depositors should be “willing to make sacrifices” to save their banks. 
 
Remember, the finance ministry is working at re-introducing the controversial FRDI Bill (Financial Resolution and Deposit Insurance bill). It was withdrawn in August 2018 from the Lok Sabha, a year after it was introduced, when it created panic among depositors of nationalised banks.  
 
In the past two weeks, there are reports that a modified version of the bill is going to be introduced in the forthcoming session of parliament. It may increase deposit insurance. Re-introduction of the disastrous ‘bail-in’ idea even will derive greater force, if depositors of PMC Bank provide proof that they are willing to make such sacrifices. 
 
This, of course, has a terrible side-effect. It let’s off corrupt bank managements who sink their banks, and the regulator for failing to supervise. 
 
In case of PMC, RBI has failed to regulate, inspect and detect conflict of interest in how the shady HDIL group and other large industrialists have bailed out the bank from time to time. 
 
In fact, the more one digs, it emerges that PMC Bank, while showing a good profit, has been running a fairly precarious operation that has needed repeated bailouts.
 
Now let us look at this in the context of various pieces of information available. PMC Bank may have been a well-run, cooperative bank but the RBI, by claiming helplessness about dual regulation, has kept alive several banks whose networth has been fully eroded, says Mr Bhide, who was on DICGS’s board. 
 
This means depositors’ money is being used to pay salaries, he says, while the burden is being deliberately passed on to DICGC. 
 
Now consider the fact that India had 1,551 cooperative banks in 2018-19 and Maharshtra alone has over 72 such, which the finance minister claims is not its responsibility. 
 
But their assets have increased from Rs1.3 lakh crore to Rs5.6 lakh crore in the same period. In Maharashtra alone, 130 urban cooperative banks were merged into 72 entities.
 
At the other end of the spectrum, the super safe and large State Bank of India has admitted in response to a Right to Information (RTI) filing that it has written off a colossal Rs76,000 crore in bad loans of only 220 defaulters  who owed it over Rs100 crore each. 
 
We also know that banks are ruthless in recovering money when it comes to small borrowers. How does this square with the sacrifice the PMC Bank depositors are offering to make? 
 
Does it mean that duious and corrupt bankers who lend recklessly to big industrialists will go scot free while while rich depositors will need to keep coming forward to ‘bail in’ banks?  
 
If this is the future, there will be an uproar and a loss of confidence in the banking system. 
 
Hopefully, the rich depositors of PMC Bank, who are willing to make a sacrifice for the banks’ revival and RBI, will consider the larger consequences of rushing into an action without understanding and analysing the implication for the banking system. 
 
Comments
Ashok
3 years ago
RBI as regulator is also accused of Criminal negilgence and or conspiracy.
Vinayak Savarkar
3 years ago
I am fd investor with DHFL. My maturity payment due on 03/10/19 is not done till date due to legal issues as per mail from DHFL.

What steps can we take to recover maturity.
suneel kumar gupta
3 years ago
Every one is blaming RBI because of being regulator. I have noted that in all financial frauds, auditors are always hand in glove with the fraudsters. If CA's licences are cancelled for ever, they will also think before involvements in such cases.
Ranbir Lamba
Replied to suneel kumar gupta comment 3 years ago
Auditors & Regulator are both responsible. Greater responsibility lies on Regulator.
Punish regulator & then see effects.
Regulator should recommend to cancel auditors license + Arrest of bankers & management.
Ashok
3 years ago
Ms. Suchita Pl reply or give your cel.It is a public fraud. And people who have before fraud coming into public domain
are cheaters hand in glove with the Thomas. First of all criminal petition/fir with
an advice of advocate should be filed. Secondly one thing Thomas deliberately/unknowingly committed that he has been doing it since last couple of years.
A criminal negligence writ/fir can be filed against Regulator/Auditor. Yesterday I have asked the lawyer who spoke yesterday, said it will not bring us money. Madame every person concerned will take efforts at highest level to resolve this issue. Here we
required to take all three action at one time. Discuss with advocate. my cel.9820181135.
As regards Sikh community proposal that of course be available to us, If you find it workable ok or otherwise reject, 200 account holder' application will not stand anywhere.
Whose crores of Rs. are in fixed deposit they know they are also going to get Rs.1 lac(period is indefinite ). So it favours them for the bank to survive. other small depositors as somewhere it is mentioned that RBI is going to allow 1 lac twice a year.
Our strategy should have multileg. but you people are more knowledgeable. But my
Points should be considered.
MOHAMMED ASLAM ANSARI
3 years ago
Careless regulatory authorities (may be even corrupt) are working for super rich at the cost of poor depositors. And the Finance ministry too refuses to accept the responsibility. Who is answerable? Shall we keep our money at home?
PRADEEP KUMAR M S
Replied to MOHAMMED ASLAM ANSARI comment 3 years ago
Bought regulators, bought at the highest levels.
Gurmeetsingh Mehtab
3 years ago
Is Sucheta Dalal searching or another Harshad Mehta moment ? Wy cannot she appreciate the fact that democratically elected Gurudrwara committees have united to understand the well being of the small depositors of the bank ? She seems to have forgotten that Sikhs were major depositors in the bank and have felt most cheated themselves.

When other banks in the past have embezzeled depositers, did people of their communities come together to save the bank ? So, while the guilty need to be punished, its unfair to suspect the intention of the Gurudwara committees and the Sikh community at large.
Mukund Puranik
3 years ago
I fully agree with Sucheta ji. These rich depositors are just trying to protect their people from public humiliation and jail to these directors. However there is no guarantee how these charity kings will recover their help and at what cost? It is just an attempt to put the whole issue under carpet and avoid legal procedures (civil and criminal). There should be no such short cut allowed and such bad practice should be stopped before it is started.
Gurmeetsingh Mehtab
Replied to Mukund Puranik comment 3 years ago
Most Sikhs families and Gurudrwara committees have bank accounts with PMC Bank with substantial deposits. Hence they are most affected by the crimes committed by the board and top management of the bank. The fact that Waryam Singh has been excommunicated from the Sikh community itself indicates a stand of non-tolerance towards his acts.

Surely, mistakes have taken place, and surely there has been malafide intent by vested parties, and they should be harshly punished by law.




Ashok
3 years ago
Ms. Suchita Pl reply or give your cel.It is a public fraud. And people who have before fraud coming into public domain
are cheaters hand in glove with the Thomas. First of all criminal petition/fir with
an advice of advocate should be filed. Secondly one thing Thomas deliberately/unknowingly committed that he has been doing it since last couple of years.
A criminal negligence writ/fir can be filed against Regulator/Auditor. Yesterday I have asked the lawyer who spoke yesterday, said it will not bring us money. Madame every person concerned will take efforts at highest level to resolve this issue. Here we
required to take all three action at one time. Discuss with advocate. my cel.9820181135.
As regards Sikh community proposal that of course be available to us, If you find it workable ok or otherwise reject, 200 account holder' application will not stand anywhere.
Whose crores of Rs. are in fixed deposit they know they are also going to get Rs.1 lac(period is indefinite ). So it favours them for the bank to survive. other small depositors as somewhere it is mentioned that RBI is going to allow 1 lac twice a year.
Our strategy should have multileg. but you people are more knowledgeable. But my
Points should be considered.
Ranbir Lamba
3 years ago
Nothing will happen
Till PIL is lodged
& FIR against Bank + board of directors+ auditor+Regulator+ GOI

Cheating+ forgeries + Dereliction of duties+ breaking of trust + theft extra
ndsubramanian
3 years ago
It is for the authorities to act. Be careful about An FIR filing against you for revealing more about RBI
ndsubramanian
3 years ago
great work
Dr.Dhananjaya Bhupathi
3 years ago
https://www.moneylife.in/article/the-dangerous-bail-in-proposal-by-pmc-banks-rich-depositors/58386.html
1. Indian Banking system [PSBs, Co-op & Private Banks, etc.,] ensured Scams losing INR.Trillions [1 trillion=1 lac crores] in Independent India. It was congress legacy.
2. The cause attributes to laxity on RBI/IBA/Central & State-Statutory Audits.
3. Most of the scams take place at apex levels involving ruling politicians, respective Bank board[s], CMDs, CEOs, EDs, etc.
4. A silver lining in this sorry state of affairs & ironical reality. A majority of staff [Clerk-Scale VII-GMs] are honest to the core, hard-working & the competent management.
5. Shri Narendra Modi is the Karma yogi*. He got elected first-time as an MLA to become CM & as the first time an MP to become the PM. He possesses a revolutionary mindset. Modi Regime 2.0 is active to strive for the deportation of fugitives with a positive response from Swiss authorities with a list of Indians with unaccounted looted money. The functioning of NIA, ED, CBI, & IT, etc., is noteworthy.
6. RBI’s hat-trick to lower interest rates on deposits vis-à-vis advances is outdated & ineffective.
7. The PM & his cabinet colleagues + BJP/RSS cadres must sit together and find out the ways & means of reviving the drifted Indian economy. No quick-fix remedies work. If not, the UFM may discuss with DR.Manmohan Singh.
8. https://www.youtube.com/watch?v=T7fOf8rUrdw.
9. SATYAMAEVA JAYATHE!!!
Faheem Mitha
3 years ago
Ms. Dalal,

The Mumbai Mirror article says the following:

Close to 200 big depositors – each with a deposit of Rs 5 crore or more – have offered to not touch their money for three years if PMC is allowed by the Reserve Bank of India to resume operations.

You wrote:

They have promised to maintain an untouched deposit of Rs5 crore each, if the Bank was allowed to resume operations and start to function normally.

Clearly, that's not the same thing. The *minimum* value of each deposit, not its actual value, would be Rs. 5 crores. So we are talking about a lower bound here. In addition, it's possible that other members of the Sikh community would stay if their leaders asked them to. They are a close-knit and organized community, and they appear to identify with this bank. It's also possible that much of the bank deposits by value are owned by Sikhs, but this is speculation.

But we really need to hear from the Sikh community directly as to what their plans are. And if course, the RBI needs to tell us what is going on with the bank.
Sucheta Dalal
Replied to Faheem Mitha comment 3 years ago
All the best to you if you think there will be more. Also, please find out -- we know but have no confirmation -- as to who withdrew Rs3363 crore of 29% of the total deposits in 3 days before the RBI action. It is important to know the truth and affected depositors need to put pressure on RBI and politicians to put information out in the public domain. Their silence after 19 days ought to worry you. It is the regulator you need to question -- whatever anybody else's intention, only RBI can grant permission for revival or closure.
Ashok
3 years ago
FOR THE PERSONAL ATTENTION OF MS. SUCHETA DALAL
It is a public fraud. And people who have before fraud coming into public domain
are cheaters hand in glove with the Thomas. First of all criminal petition/fir with
an advice of advocate should be filed. Secondly one thing Thomas deliberately/unknowingly committed that he has been doing it since last couple of years.
A criminal negligence writ/fir can be filed against Regulator/Auditor. Yesterday I have asked the lawyer who spoke yesterday, said it will not bring us money. Madame every person concerned will take efforts at highest level to resolve this issue. Here we
required to take all three action at one time. Discuss with advocate. my cel.9820181135.
As regards Sikh community proposal that of course be available to us, If you find it workable ok or otherwise reject, 200 account holder' application will not stand anywhere.
Whose crores of Rs. are in fixed deposit they know they are also going to get Rs.1 lac(period is indefinite ). So it favours them for the bank to survive. other small depositors as somewhere it is mentioned that RBI is going to allow 1 lac twice a year.
Our strategy should have multileg. but you people are more knowledgeable. But my
Points should be considered.
Cheruthon Ninan
3 years ago
I wish as depositors we can take separate insurance policy for our deposits. Even if I need pay a small premium at least these kind of issues are covered. Is this possible? Just like burglary etc.
Ranbir Lamba
Replied to Cheruthon Ninan comment 3 years ago
There is provision to insure lockers & jewelry on similar lines
It will not be difficult to insure cash
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