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Old 17th October 2019, 12:32   #31
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

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Originally Posted by aniketi View Post
End of the day, people know what they are doing, right? Nobody forcing them to keep their money in any particular bank. When they know its a small bank which has no government backing, why keep all money there? Why to take undue risk for few more money? It's like buying a small car which has no safety features, you know there is a risk, still one buy it to save money.
Not if the books and reports are fudged (which is usually the case everywhere).

Or do you intend to imply people should have the smarts to tap into the internal corporate grapevine and make informed choices?

Your argument will hold its ground only in case of absolute transparency and information symmetry (which is the underlying assumption when we say Laissez-faire capitalism is the best system).

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I frankly find it ridiculous that the government will write off big loans of PSU banks as bad debt, keep funding the white elephant Air India in tens of thousands of crores and yet, not do anything for the common man who thinks his money is safe in the bank?
This is the problem of politics and crony capitalism which cannot be solved. (Crony capitalism exists because it is wired into most human beings, and there is no remedy for this).

Remember: It has always been "every man for himself".

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What I personally do = spread my funds across reputable banks (including, but not limited to, PSU banks). Absolutely won't put all my eggs in one basket. No co-operative banks or small players like IDFC for me.
Are you absolutely sure that the assets and liabilities side of your bank's balance sheets is the reality?

Of course diversifying is a wise choice to reduce the downside.
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Old 17th October 2019, 12:33   #32
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

The larger question is that is it possible to trust our institutions? Are they doing an effective job in tracking what they are supposed to? Cooperatives bank do come under RBI audits but it appears that the standards are relaxed for them.

There is no doubt that the limit of Rs 1 lakh needs to be increased. The increase in premium for the banks will not be proportional because there will be lesser and lesser accounts to cover as the threshold is increased. So the premium to cover 3 lakhs will not be 3 times the premium to cover Rs 1 Lakh. Morever this was a limit set in 1992 and the revision is long overdue.

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Also, the regulator should be taken to task for the pathetic announcements of withdrawal limits. There is no application of mind, first 1000, then 10000, then 25000, and now 40000. When the DICGC insures deposits of 1 lac in the event of liquidation, why make borrowers queue up like beggars? Just announce that 1 lac can be withdrawn now and the balance post investigation. Such a lame drama of showing they care for depositors.
Excellent point. Perhaps this is just another manifestation of the sarkari mindset - make even getting your rightful due such a misery that you are thankful you received anything at all.
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Old 17th October 2019, 12:38   #33
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

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Originally Posted by Warwithwheels View Post
HDFC's statement:

Attachment 1923728
So it means that it is indeed a genuine stamp and this rule has been there since long. Thanks for sharing this.
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Old 17th October 2019, 12:39   #34
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

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Not if the books and reports are fudged (which is usually the case everywhere).

Or do you intend to imply people should have the smarts to tap into the internal corporate grapevine and make informed choices?

Your argument will hold its ground only in case of absolute transparency and information symmetry (which is the underlying assumption when we say Laissez-faire capitalism is the best system).
Read my post again. People knows that only 1 lakh has insurance cover. Banks other than PSU banks don't have government backing is also a known fact. Then why keep all money in such banks? If you keep small amount in such banks, then even if you don't know books and reports are fudged, you will not lose your money, right?

Again will repeat same thing, choice is yours. To take more risk for some more returns or keep safe in multiple banks, PSU banks & have peace of mind.
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Old 17th October 2019, 13:35   #35
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

I hope the poor depositors are able to get their money back - I personally maintain my savings only in scheduled private and public sector banks as these have far greater accountability and regulation by the RBI.

Co operative banks are open to abuse by the state governments of the day as they have a say in their functioning. I've seen some extremely shady people made the politically appointed 'chairman' of a co operative bank that operates in my state.

Best also keep track of the private bank you are a customer of by being aware of their quarterly results and the news around them. There seems to be something rotten at Yes Bank - which is why my relatives and friends have shifted their savings out from them. Took a bit of a loss in Interest earned - but better to be safe than sorry.
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Old 17th October 2019, 14:10   #36
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

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Originally Posted by aniketi View Post
Read my post again. People knows that only 1 lakh has insurance cover. Banks other than PSU banks don't have government backing is also a known fact. Then why keep all money in such banks? If you keep small amount in such banks, then even if you don't know books and reports are fudged, you will not lose your money, right?

Again will repeat same thing, choice is yours. To take more risk for some more returns or keep safe in multiple banks, PSU banks & have peace of mind.
This and the previous statement is like saying.

If you travel via a road which you know is not the safest and you get robbed, in such a case the person is the culprit and not the thief.

Yes, the person should have been more judicious but he didnt deserve the crime committed to him.

Also, remember the government made a strong push for opening bank accounts for all citizens. This will severely dent the efforts and investments done to drive white transactions. Infact most people, who moved to banks recently, will revert to black transactions after seeing this.

I think the current finance ministry has no understanding of whats going on and there seems to be no roadmap for the economy. Also I feel that RBI and Government are completely out of sync towards a common goal.
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Old 17th October 2019, 14:42   #37
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

That's terrifying. When a bank goes under, do the contents of our lockers belong to them? Are they seized? Laxmi without Vilas, indeed.

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Don't ever think that jewels in the locker are safe, that also has the same ₹ 1 lakh limit
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Old 17th October 2019, 15:57   #38
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

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That's terrifying. When a bank goes under, do the contents of our lockers belong to them? Are they seized? Laxmi without Vilas, indeed.
Why should that be the case? The bank is only a custodian of the contents inside the locker. I have not invested the contents with the bank in lieu of some returns. Hell, the contents may not even be investible. I can put a bathroom slipper inside for all I care. The bank doesn't even know what you have put inside
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Old 17th October 2019, 16:42   #39
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

Let's get some fundamentals out of the way.

1. As many have pointed out, the cooperative "banks" have very relaxed regulations. They come under the purview of the state cooperative ministries and only partly under RBI. It is a dual control and RBI does not even have authority to approve of the Chairman of the bank.

Please check this RBI site for the types of banks.

As per above link there are 21 Public sector banks (to be further reduced), around 20 private sector banks, around 44 foreign banks.

Non-scheduled Cooperative banks from the above link, it downloads a 42 page pdf document. Search for "Pune" and it shows up 82 results. So many cooperative banks in one city.

Approximately 1550 cooperative banks are active now.

2. In the last 15 years around 400 cooperative banks have closed. That is around 30 cooperative banks closing per year.

3. Cooperative "banks" as the name suggests are cooperatives first, and banks later. They are formed within small communities/traders. Most employees are from the same communities, and directorships/chairmen are family members.
There is usually not much marketing or growth outside of the communities or localities or regions. But successful cooperative "banks" do outgrow their regional/community mandates.

So probably the solution is for RBI to disallow these cooperatives to use the word "bank" in their names. The word bank strongly suggests a sense of security, which these cooperatives simply don't have.

So be warned and stay away from cooperative banks !!. It is as simple as that.

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Originally Posted by Sebring View Post
That's terrifying. When a bank goes under, do the contents of our lockers belong to them?
No. You are given a time to remove the contents of the locker. Not sure what happens if you are unable to remove the contents within the timeframe.
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Old 17th October 2019, 16:50   #40
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

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Originally Posted by GTO View Post
I frankly find it ridiculous that the government will write off big loans of PSU banks as bad debt, keep funding the white elephant Air India in tens of thousands of crores and yet, not do anything for the common man who thinks his money is safe in the bank?

Where are the regulations? Where are stronger insurance policies or systems that safeguard my deposits? Where are the damn checks & balances? Why do I get only 1 lakh rupees if my bank shuts down?
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Don't agree , Everyone knows what is a cooperative bank.

A depositor in cooperative bank is not a customer but a member of cooperative society. Unlike a scheduled commercial bank cooperative bank can not lend or take deposits from a non-members. Cooperative banks exists for a reason that is they can allow a closed knit community to continue financial activities in domain where regular scheduled commercial banks won't step in and lend.

So depositors know at the onset that they are undertaking a risker venture and the reward is either higher interest or borrowings with less collateral or for projects deemed unviable or borrower categorized too risky by scheduled commercial banks
In what kind of economy rewards are for members and failures to be paid for by tax payers ?

Now coming back to regulation as you have asked, The 1 Lakh deposit insurance per depositor was too low late Arun Jaitley floated FDRI bill in 2017. This bill called for creation of a new resolution agency which can work for quick resolution of failure of financial institutions ( banks and non-banks alike)

There was a stiff resistance by know it all analysts , RBI led by Raghuram Rajan , hyper active media and everyone else so bill was sent to select committee of parliament and finally shelved. The whole controversy was around bail-in clause where in case of failure the depositors were supposed to take hair cut. The bail-in was for over and above the raised deposit insurance limit ( Various amounts ranging from 10L to 1 Crore was proposed for limit of deposit insurance). Also the bail-in haircut was not to be written off but converted to equity / bond.

So for illustration lets assume if you have a deposit of 1 crore and 10L is the deposit insurance limit and suppose for bail-in a 20% hair cut has to be taken up by depositor then 90 X 0.20 = 18L will be converted to either shares or bonds and you will be able to get back 82 Lakhs + 10 L back immediately , Now suppose if bank is able to turn around then the 18L or equity / bonds you will be able to recoop after 5 to 10 years. So the bail-in clause was infinitely better then 1 lakh deposit insurance which exists today.

However the expectation at that time was that government should continue to provide 100% bailout by tax payers money or merge failed banks in to larger PSU banks as RBI have been doing for so many years.

Hopefully now public at large will understand that a bill like FDRI is required and tax payers should not be expected to foot the bill of misdeeds of a few in private sector banks and cooperatives and a law similar to FDRI 2017 is enacted again.

Last edited by amitk26 : 17th October 2019 at 17:02.
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Old 17th October 2019, 17:00   #41
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

A Bank is supposed to be a place in which people can store their hard earned money with full faith, trust, safety & security. If a Bank is going to breach the trust, people would be a very worried/scared lot! This has been a topic of discussion at many meetings with friends, most of them had full faith in the system but of late they have lost the trust & are no more willing to depend upon the Banks for the security of their deposits. Many are in the process & many have already moved their investments abroad.

Over here you never know which scam might surface where, corruption is way too rampant to leave any system neat & clean. No honest citizen would be willing to see off their hard earned belongings at the mercy of willful loan defaulters/scamsters. 1L max remittance per deposit is a mere pittance. This loss of trust is definitely gonna hurt the banking system & investments. High time the regulator/Govt came up with some stringent laws & deposit gurantees.
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Old 17th October 2019, 17:12   #42
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

What a wonderful time our country is having, Co operative banks go belly up ( PMC), Private banks are touching rock bottom ( Yes Bank, Lakshmi Vilas, Indus Ind bank etc) Government Banks, I don't want to comment on them as their situation is crystal clear.
The RBI who is supposed to oversee and manage the above mentioned does not have a clue about whats happening and they are mute spectators to this whole drama.

The Government though in respect to PMC at least is updating the situation which the previous scams were missing.

The common man's hard-earned money does not have any value, that's the truth


By the way what happens to your Demat/Share Trading account linked to your savings account if the concerned back folds up.
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Old 17th October 2019, 17:19   #43
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

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By the way what happens to your Demat/Share Trading account linked to your savings account if the concerned back folds up.
Should be ok. Thankfully, the bank does not hold your shares or debentures. A different entity, called depository (e.g. NSDL) holds them.
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Old 17th October 2019, 17:38   #44
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

Just curious - Why do people (I don't mean poor farmers living in some unheard of village) put their money in these banks when you have big names like HDFC or our very own SBI who can cater to them? What's the benefit banking with these "small" establishments?
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Old 17th October 2019, 17:47   #45
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Default Re: PMC Bank: How bank closures & scams affect common men. Why is the protection only up to Rs 1 lak

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Should be ok. Thankfully, the bank does not hold your shares or debentures. A different entity, called depository (e.g. NSDL) holds them.

But how will NSDL respond to this issue when the savings account linked to the account itself is not active.

The present situation is such that anything and everything does have unlimited possibilities of going wrong.
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