PMC Bank Depositors’ Crisis: Why Not Extend Credit On Easy Terms?

What has govt done to alleviate sufferings of middle-class depositors in all the banking crises in India?

As of March 2019, PMC Bank had outstanding deposits of Rs 11,600 crore, of which demand deposits were nearly Rs 2,300 crore, and the balance were term deposits. And what has the RBI done to assuage the mental and financial hurt of the depositors? Well, after initially allowing peanuts — Rs 1,000 — as the maximum withdrawal limit by savings and current account holders during the six months PMC would remain paralyzed and frozen, as it were, the RBI has increased this ten fold to Rs 10,000.

It claims that with this, 60 percent of the depositors’ plight ‘has been addressed’ inasmuch as they hold not more than Rs 10,000 in savings and current accounts of PMC.

But then, what about the fixed deposit holders who account for a whopping Rs 9,300 crore — for whom in any case, even Rs 10,000 — if permitted — would be a cruel joke.

What Has Govt Done to Alleviate Sufferings of Middle-Class Depositors?

A lady went public with her grievance — Rs 22 lakhs of her hard-earned money blocked in PMC fixed deposits. She was obviously taken in by the slightly extra interest that cooperative banks, including PMC, pay. In hindsight, she would be ruing her decision to have put all her eggs in one basket. The deposit insurance of a maximum of Rs 1 lakh in a bank — be it in savings, current or fixed deposits — is per bank, per depositor. Multiple bank accounts therefore, serve another useful purpose — if this lady had put her Rs 22 lakhs in 22 different banks, her entire savings would have been saved!

But then, what has the government done to alleviate the sufferings of the middle-class depositors in all the banking crises that has plagued the nation right from Independence, apart from putting in place a meager deposit insurance scheme?

It routinely bails out farmers with loan waivers, in which too only the rich farmers (read kulaks) benefit, for the simple reason that grassroots farmers prefer the relative informality and ease of the local moneylenders of sahukars, despite knowing they practice usury. It listens to the plight of the well-organised captains of the industry whose lobbyists in CII, ASSOCHAM etc are persuasive speakers and analysts.

The result was that the government, a few days ago, brought down the corporate tax rate drastically to 22 percent, and for the ones incorporated on or after 1 October 2019, and doing manufacturing to 15 percent.

PMC Bank Crisis: Here’s What Govt Could’ve Done to Offer Relief

So, why doesn’t its heart go out to the depositors? Why does it leave them to stew in their own juice? In all fairness to them, especially the fixed deposit holders of PMC Bank, it should unveil a credit scheme — if not a bail out scheme. Its contours can be as follows:

1. 50 percent of frozen deposits would qualify for an advance from the government or the RBI, which has formidable reserves;
2. The advances would carry a soft rate of interest, say 2 percent per annum;
3. There would be no collateral;
4. The advances would have to be repaid from out of the deposits unlocked;
5. And if the bank goes bust and thus the deposits are not fully paid back, the advances can be paid back in easy installments leisurely over a period of ten years.

Is this too much to ask of the government? It is the middle-class which is always singed and singled out for unsympathetic — if not harsh — treatment. Unlike industrialists, they are not properly organised, and thus, are voiceless and inarticulate. The government thus takes them for granted. Many of them belong to the salaried class on whom the tax burden is heaped, even as their wily business counterparts thumb their noses at the taxman. The government must bestir and help the depositors of PMC Bank, as well as depositors in other banks who lose out on their precious savings for no fault of theirs.

(S. Murlidharan is a Chartered Account, and has also written extensively for The Hindu Business Line between 1996 through 2013, and later started contributing regularly to Firstpost on a range of issues like business, economic, tax. He is currently based in Chennai. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)