Another PMC Bank-Like Crisis? RBI Restricts Withdrawals From Sri Guru Raghavendra Sahakara Bank

The crisis that hit the Punjab and Maharashtra Co-operative Bank Limited (PMC Bank)?last year after the Reserve Bank of India (RBI) in September imposed restrictions on cash withdrawals following the revelation of an Rs. 6,500 crore loan scam was one of the worst episodes in the history of banking in India.

Now, a similar episode is unraveling in Bengaluru after the RBI imposed severe curbs on cash withdrawals from the Guru Raghavendra Sahakara Bank in Bangalore.

According to the RBI order, customers can only withdraw up to Rs 35,000 from the balance of any account for the next six months.

In a notice under section 35A of the Banking Regulation Act, 1949, the RBI said "As from the close of business on January 10, 2020, the aforesaid bank shall not... grant or renew any loans and advances, make any investment... In particular, a sum not exceeding Rs 35,000 of the total balance in every savings bank or current account or any other deposit account may be allowed to be withdrawn subject to conditions."

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The RBI, however, made it clear that the license of the bank has not been canceled and the restrictions could be relaxed in the future.

The RBI's move has caused panic among the more than 9,000 depositors of the Sri Guru Raghavendra Sahakara Bank which has ten branches in the Karnataka capital.

As the news spread thousands gathered outside the bank's branches seeking answers and trying to withdraw their life savings.

The bank's chairman K Ramakrishna said the depositors' money is "one hundred per cent safe". "Your money is 100 per cent safe with Sri Guru Raghavendra Sahakara Bank. It is my responsibility," he told customers.

The bank which has been operational since 1997 has blamed 62 loans that have locked up Rs 300 crore of deposit.

"Because of these 62 dud loans, the Reserve Bank of India (RBI) had restricted the lender from executing business," Ramakrishna said.

Ramakrishna also assured that he would meet customers again on January 19 with all the details and numbers.

The RBI move over bad loans came as a surprise to many as the bank's publicly listed NPA stood at 0.45% according to the 2017-18 audit. It is also claimed that the bank received the best NPA management award in 2018 from the National Federation of Urban Cooperative Banks and Credit Societies Limited (NAFCUB).

Bengaluru South Member of Parliament Tejasvi Surya who spoke and comforted the crowd via a microphone said, “Don’t worry I am with you. I have contacted the Finance Minister, Nirmala Sitharaman and informed her about the issue. On Tuesday, the finance minister will be issuing a statement in this regard.”

The last time the RBI had issued directions was regarding the Punjab and Maharashtra Cooperative (PMC) Bank Limited, Mumbai, Maharashtra when the cash withdrawals were restricted for the account holders.