• India
  • November 27, 2020

PMC Bank Failure: How Safe Indian Banks Are ?

JAG MOHAN THAKEN 

Current incident of  Punjab & Maharashtra Cooperative (PMC ) Bank failure has once again shown the ugly face of Indian Banking System(IBS) . It has shattered the belief of lakhs of  people who deposit their hard earned money in the banks to keep it safe and secure . But, it has also unmasked that how the bank regulators including RBI and NABARD  , managements , internal auditors  and statutory auditors are unserious and keep their vigilant eyes closed.

ALICIA TUOVILA  in an article in Investopedia.com , defining  Statutory Audit , states , “ A statutory audit is a legally required review of the accuracy of a company’s or government’s financial statements and records. The purpose of a statutory audit is to determine whether an organization provides a fair and accurate representation of its financial position by examining information such as bank balances, book keeping records, and financial transactions.”

 There is a saying “   Saamp ko nahin , Saamp ki  Maa ko mariye jo anginat Saamp paida karti hai.”(Don’t kill the snake , but kill the mother of snakes which gives birth to hundreds of snakes.)

Above mentioned auditing and checking  authorities , responsible for curbing the birth of snakes in the IBS , should be kicked off with a hard hit . If they  can’t even notice or smell the internal health of the Banks during their off- site and on-site inspection and  audit period , then what kind of  surveillance  they are keeping ?

PMC Bank , a cooperative bank operating in seven states with 137 branches , having a deposit of Rs. 11617 crore  , a loan portfolio of Rs. 8383 crore , net profit of Rs. 99.69 crore  and a declared  NPA of mere 3.76% in its 31.03.2019 balance sheet . What a glorious picture the bank was sprucing up ! Then what were the reasons of its sudden collapse ? Keeping aside the rules &regulations , distorting all  bars and codes  , the bank had reportedly lent a major portion of its loan portfolio nearly 70% of total advancement to a single entity  HDIL , which gone bad . RBI failed to identify the violation of rules by the PMC bank , why ?

PMC bank collapse is not the first incident in IBS , Neerav Modi & Mehul Choksi  caused an alleged fraud of Rs. 13570 crore to Punjab National Bank and Vijay Mallya eloped after giving a jolt  of Rs. 9000 crore .

During the financial year 2018-19 , 6801 fraud cases involving an amount of Rs. 71500 crore have been detected  in the Indian Banks and this shows only detected face , there may be some higher jerks which are still waiting to see the light .

During the first quarter  (April to June ) of this fiscal year of 2019-20 , frauds worth Rs. 32000 crore have rattled the 18 Public Sector Banks or Govt banks . An RTI answered by RBI reveals that 2480 fraud cases defrauding the amount of Rs. 31898.63 crore   have been lime lighted . 38 % of the chunk  i.e  1197 cases of fraud involving an amount of Rs. 12012.77 crore relate to SBI alone . Allahabad Bank with 381 cases and amount of Rs. 2855.46 crore  got the second position and the Punjab National Bank , despite having a deep wound of fraud of Rs. 13000 crore in February , 2018 by the big whale Neerav Modi ,   got the third position with a fraud of Rs 2526.55 crore during these three months of this year .Other Public sector banks  are also not far behind , they also play major role in keeping the fraud  train running  with nearly the same speed .

What safety to the public money in Indian Banks ?

The  BJP government led by Prime Minister Narender Modi in 2016 enforced the public to deposit their hard earned all life savings to the banks by imposing  NOTE- BANDI  , which kept the earnings of the people on stake without making an arrangement to secure and guarantee the entire deposit . Presently the deposits of a person  upto the maximum  limit of Rs. one lakh in a bank are guaranteed by DICGC (Deposit Insurance and Credit Guarantee Corporation ) set up with a mission   to contribute to financial stability by securing public confidence in the banking system through provision of deposit insurance, particularly for the benefit of the small depositors.

Banks covered by Deposit Insurance Scheme are (I) All commercial banks including the branches of foreign banks functioning in India, Local Area Banks and Regional Rural Banks and  (II) Co-operative Banks – All eligible co-operative banks as defined in Section 2(gg) of the DICGC Act .

What RBI states about the role of DICGC ?

Reserve bank of India under the head of frequently asked questions regarding the role of DICGC states:

What does the DICGC insure?

In the event of a bank failure, DICGC protects bank deposits that are payable in India.

The DICGC insures all deposits such as savings, fixed, current, recurring, etc. except the following types of deposits.

(i)  Deposits of foreign Governments;

(ii) Deposits of Central/State Governments;

(iii)Inter-bank deposits;

(iv) Deposits of the State Land Development Banks with the State co-operative bank;

(v) Any amount due on account of any deposit received outside India

(vi) Any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India.

What is the maximum deposit amount insured by the DICGC?

Each depositor in a bank is insured upto a maximum of Rs.1,00,000 (Rupees One Lakh) for both principal and interest amount held by him in the same capacity and same right as on the date of liquidation/cancellation of bank’s licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force.

Never  put your all eggs in a single basket

The elderly retired persons or the present working employees keep their funds in the banks to give a security cover to their future life  and  the farmers and businessmen also have their savings / sale proceeds  or working funds in their accounts with the banks  for their day to day needs . Also the government has made such harsh rules & regulations which  stop the public from keeping cash in their white  pockets , so the people are forced to keep money in banks. But when the money of the public is not safe even in the government  banks and no security cover from the banks or the government  has been provided to the depositors beyond Rs.One lakh per bank (Not Per Branch ) , where the people should go ? Such type of restrictions and insecure environment lead to unaccounted money and situation of chaos. 

Keeping in mind all the consequences , the public should not keep more than Rs. one lakh in a single bank . If a person keeps his money in different branches of a single bank , even then total of his all deposits in all the branches are counted as one account  and no security  coverage from DICGC to more than Rs. one lakh deposit even in scattered accounts in the same bank . In the present scenario , the  public should  follow the thumb rule “Never  put your all eggs in a single basket.”

Keep your deposits in different banks and not in different branches of a single bank .However it’s not an example of good governance and the government should come forward to frame rules for securing the hundred  percent earnings of its  subjects 

PM’s Housing To All By 2022 : Will Everyone Get A House ?

Jag Mohan Thaken 

Prime Minister Narender Modi  ,in 2015 ,  launched  a new  housing scheme  under Prime Minister’s Awaas  Yojna  with the aim of providing Housing for all by 2022 . Under ‘Pradhan Mantri Awas Yojana- Housing for All (Urban)’ alone  keeping  in mind  the slum decadal growth rate of 34%, the slum households  were  projected to go upto 18 million. 2 million non-slum urban poor households are proposed to be covered under the Mission. Hence, total housing shortage envisaged to be addressed through the new mission is 20 million( 2 Crore ) . The re-structured rural housing scheme Pradhan Mantri Awas Yojana – Gramin (PMAY-G) which has the objective of “Housing for All by 2022” was launched by Hon’ble Prime Minister on 20th November, 2016 from Agra. 2.95 crore houses are set to be constructed by 2022 to achieve the set objective of PMAY-G which has been decided to achieve in phases. Thus a total of 4.95 crore houses are to be constructed by 2022. 

 In  a tweet on PMO India (@PMOIndia) on Nov 21, 2015 , Prime Minister Narender Modi (PM @narendramodi ) tweeted , “ We have launched a ‘Housing for All’ program. It involves building 20 million urban houses and 29.5 million rural houses.” 

Who to get benefit of PMAY ?

The beneficiary family should not own a pucca house (an all  weather dwelling unit) either in his/her name or in the name of any member of his/her family in any part of India. A beneficiary family will comprise husband, wife and unmarried children. 

Under the new Housing Scheme – Prime Minister’s Awaas  Yojna launched in 2015 with the aim of providing Housing for all by 2022, EWS households are defined as households having an annual income of up to Rs.3,00,000 . 

LIG households are defined as households having an annual income between  Rs.3,00,001 (Rupees Three Lakhs One) up to Rs.6,00,000 (Rupees Six Lakhs). States/UTs have the flexibility to redefine the annual income criteria as per local conditions in consultation with the Centre.

To check the demand of houses , the Chandigarh Housing board (CHB) conducted a demand survey for allotment of 492 flats  in sector 53 of Chandigarh  against which only 129 applications were received .  Out of which 71 applications were received for 3-BHK ,23 for 2-BHK , 8 for one-BHK and 27 for EWS flats. The CHB has proposed to construct these 492 flats for allotment under self -financing scheme where the allottee will have to pay 100 % payment before possession . Even after a decrease  , the price of  3BHK (HIG) kept at Rs.1.63 crore, 2BHK(MIG) Rs. 1.36crore, 1BHK (LIG) Rs. 90 lakh and a two- room flat for EWS Rs. 50 lakh.

The Economic Survey -2020  states that the decline in household investment in dwellings, other buildings and structures, since a six year span  over 2011-12 to 2017-18 is a reflection of slower growth in purchase of houses by households. 

The Financial Express   highlights the Survey’s  suggestions  that real estate developers take a haircut to bring down housing prices, which it points out have remained high despite a huge inventory of 9.43 lakh units worth a whopping Rs 7.77 lakh crore stuck at various stages across the top 8 cities in the country.

But , would a slight hair cut in housing prices be sufficient to attract buyers ? No , if we see the prices fixed ( 1BHK  for LIG   Rs. 90 lakh and a Two- Room flat for EWS Rs. 50 lakh)  by the central government ruled Union Territory , Chandigarh for its Housing Board projects floated  , can  anyone belonging to LIG and EWS category purchase these houses ? In Haryana also the prices of HUDA floated plots in Panchkula, Gurugram, Faridabad etc. for EWS and LIG categories have gone beyond the reach of these category buyers . 

Shouldn’t the Finance Minister of India direct the government housing  projects to lower down the prices of their projects , so that other private players may also follow them ? 

With  the  passage  of five  years out of seven years  ,a  major span has become the past and only two years  are there in hand to fulfill the promise  under Prime Minister’s Awaas  Yojna ,2015   with the aim of providing Housing for all by 2022. 

Monthly summary on the principal activities of Ministry of Housing and Urban Affairs for the month of October, 2019  (No. A-42011/1/2019-Coord- Dated the 2 December, 2019 )  reveals that under  Pradan Mantri Awas Yojana (PMAY)/ Housing for All  (HFA),  more than 93 lakh dwelling units in 19,471 projects with an investment of Rs. 5,55,754 crore involving Central assistance of Rs. 1,45,949 crore have been approved under PMAY. So far, 55 lakh houses have been grounded for construction, 28.02 lakh houses have already been constructed and 25.55 lakh houses have been occupied. 

FactChecker.in ,  a India’s  dedicated Fact Check initiative ,  writes, “  About 1.44 million houses had been constructed under PMAY-Urban upto January 31, 2019, and 1.39 million had been occupied, according to the latest available ministry of housing and urban affairs (MoHUA) data presented in the Lok Sabha in February, 2019. This is 20% of the 7.6 million houses that have so far been sanctioned.

In rural India, the government had completed construction on 7.7 million houses, or 77% of the target of 10 million by the deadline of March 31, 2019 for the first phase of PMAY-Rural. It has yet to construct 2.3 million houses, even as the next phase of PMAY-Rural begins, according to the PMAY dashboard on April 15, 2019. However, only 34% of beneficiaries have so far received full payment, data show.” 

But Asianage in its report dated   Aug 26, 2019 , claims a very serious  and dark side of PMAY , “The ambitious target of Prime Minister Narendra Modi to provide ‘housing for all’ by 2022 under Pradhan Mantri Awas Yojana-Gramin (PMAY-G) seems to be in serious jeopardy, since as many as 14 states, where the BJP is directly in power or is in alliance with a regional party, have not sanctioned a single unit for construction in 2018-19, which was the last year of the first phase of the scheme.

These 14 laggard states are Gujarat, Haryana, Himachal Pradesh, Uttarakhand, Assam, Tripura, Arunachal Pradesh, Goa, Karnataka, Bihar, Manipur, Meghalaya, Mizoram and Nagaland, according to official data available with The Asian Age. Other than these 14 states, there are six more states, which have failed to open their account in terms of sanctioning housing units for construction under PMAY-G during 2018-19.”. (https://www.asianage.com/india/all-india/260819/modis-housing-for-all-by-2022-in-jeopardy.html) 

What a  melancholic situation it is !  

Showing the decreasing  figures of Loan disbursal  to EWS and LIG categories  for Financing for affordable housing , RICS (Royal Institution of Chartered Surveyors) in association with international property consultant Knight Frank in its  report  dated 30 July 2019 mentions ,

 “ From Fresh disbursals of HFCs and Scheduled Commercial Banks (SCBs), it is evident that the share of EWS sector in new disbursals has come down each financial year from 21% in FY 2013 to just 10% in FY 2018. Moreover, even the share of LIG sector in fresh disbursals has also declined from 39% in FY 2013 to 33% in FY 2018.”

Why the banks are not disbursing the housing loans to the EWS and LIG categories as per their requirement to boost the housing sector ? A retired Banker says, “ The prices of the houses are unchecked high ups and beyond the purchasing power of EWS and LIG sections . Banks finance the borrowers as per their repayment capacity . These categories neither have sufficient savings for their margin money share nor have the surplus funds to repay the loans out of their limited income . The only solutions is either the Government to halve  the housing prices or to double up the income of these categories .”