Mumbai, September 25: Customers of the Punjab and Maharashtra Co-Operative (PMC) Bank are left in the lurch as the Reserve Bank of India (RBI) has imposed tight restrictions on the lender's operations. Since Tuesday, the bank has been barred from renewing loans or granting new ones, making investments, accepting fresh deposits or discharging any payments under its liabilities except for the salaries of its employees, electricity bills and other office expenses. The most hard-hitting restriction is the limit of Rs 1,000 imposed on withdrawals per bank account. Here's the PMC Crisis explained.

Why Are Customers Panicking?

Several customers had linked the EMIs of their loan payments to their PMC Bank accounts. The fixed deposit schemes of many depositors were scheduled to mature in the next couple of weeks. A slew of customers wanted to transfer their loans. All of them were driven into a frenzy after the RBI freezed the bank's operations for the next six months. None of the above-mentioned banking operations can now be carried out.

The single biggest reason for the PMC Bank account holders to panic is the restriction imposed on cash withdrawals. Irrespective of the amount stashed in their accounts, a person cannot withdraw more than Rs 1,000 for the next six months. This has escalated tensions among account holders who are worried about paying for medical emergencies, investing in the education of their wards or incurring marriage expenses.

Why Has RBI Imposed The Restrictions?

Under Sub-section (1) of Section 35A of the Banking Regulation Act, 1949, the Reserve Bank is guaranteed special powers to freeze the operations of a cooperative bank and take over its management board if the lender's functioning poses a risk to the interest of the depositors.

Although the central bank has not cited the exact pretext for the emergency measure, it has mentioned "irregularities" as the reason for imposing the restrictions.

According to experts, the RBI will constitute a new board for the bank's operation and lift the restrictions if it is convinced that the new management will be able to tackle the capital crisis.

What Happens Now?

A statement issued by PMC Bank MD Joy Thomas said the issue will be resolved within the next six months. "I know it is a difficult time for all of you and any apology may not restore the pain you are undergoing," Thomas said. "The bank will be open for the customers as per its regular working hours. We assure you that your money is in safe hands," he added.

Experts, however, are sceptical of the claims being made by the banker. According to Capital Mind Founder Deepak Shenoy, the restrictions may last longer than the stated period of six months.

"How long could these directions last? A long time. Another bank, the Rupee Cooperative bank, was in such directions as of Feb 2013 . And it's still in that mess now," Shenoy on Twitter.

"Three years after the first notification, Rupee Coop bank account holders were allowed to withdraw Rs. 20,000 per account (increased from Rs. 1000 per account) So to repeat - the PMC Bank mess can last a long time. Even a change in the Rs 1,000 withdrawal limit can be far away," he further added.

At this point, the PMC Bank customers need to form an association and collectively present their case before the RBI, said another banking expert, adding that the central bank must be pressured to expedite the resolution process. Moving to the court is also an option, but the resolution may take years leaving the depositors stranded.

(The above story first appeared on LatestLY on Sep 25, 2019 12:41 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).