The Reserve Bank of India (RBI) on Tuesday came down hard on Punjab & Maharashtra Co-operative Bank (PMC) for under-reporting its bad loans.

Depositors, the RBI said, can withdraw just Rs 1,000 in the next six months, leaving them in the lurch ahead of the festival season.

The urban co-operative bank, based in Sion in Mumbai, has a presence in seven states, encompassing Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh and Madhya Pradesh. It has a network of more than 137 branches.

The RBI move came as a huge shock to depositors who thronged the bank’s branches to find out the reasons behind the sudden move.

While co-operative banks in Maharashtra are not new to the banking regulator imposing such sanctions, the latest step came as a surprise as last available numbers showed that the bank was profitable.

Number game

During 2018-19, PMC reported a net profit of almost Rs 100 crore compared with Rs 100.90 crore in the previous year. The bank had total deposits of Rs 11,617.34 crore against Rs 99,38.85 crore in 2017-18.

The central bank clamped down on PMC as it found the bank had under-reported non-performing assets (NPAs) during its annual inspection and that the actual bad loans could be in high double-digits.

For 2018-19, PMC saw net NPAs doubling to 2.19 per cent from 1.05 per cent in the previous fiscal.

Section 35A

A statement from the RBI said that it was taking this action under Sub-section (1) of Section 35A of the Banking Regulation Act, 1949 read with Section 56 of the Act.

Section 35A deals with the power of the RBI to give directions and the banking company will be bound to comply with such orders.

The central bank can issue such directions in public interest to protect depositers’ money if a bank is “operating in a manner prejudicial to the interests of the banking company or to secure the proper management of any banking company’’. Section 56 applies to cooperative societies.

Strict boundaries

The RBI said that without its approval, PMC cannot grant or renew any loans and advances.

It cannot make any investment and incur any liability, such as borrowing funds or accepting fresh deposits.

The RBI statement said the bank cannot “disburse or agree to disburse any payment whether in discharge of its liabilities and obligations”.

The statement did not give any reasons for the regulatory action.

The urban co-operative bank also cannot enter into any arrangement for sale, transfer or otherwise dispose of any of its properties or assets.

The central bank, however, added that the move should not be construed as cancellation of PMC’s banking licence.

The bank’s managing director Joy Thomas said in a statement that PMC was put under regulatory restriction by the RBI for a period of six months because of irregularities disclosed to the banking regulator.

“As the managing director of the bank, I take the responsibility and assure all the depositors that these irregularities will be rectified before the expiry of six months,’’ he said.

Unconfirmed reports also said that the RBI has superseded the board of PMC and an administrator has been appointed who will now look over the affairs of the bank.

Under the scanner

In the past, the RBI has used Section 35 (A) of the Banking Regulation Act to impose restrictions on banks such as the City Cooperative Bank, Vasantdada Nagari Sahakari Bank, the Madgaum Urban Cooperative Bank and Karad Janta Sahakari Bank.