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From PMC To Lakshmi Vilas Bank, Why Only Common Man & Depositor Suffer? What has happened to the judgement power of RBI?

It is the common man who suffers yet again as news of cash strapped Lakshmi Vilas Bank put under moratorium by Reserve Bank Of India for a period of one month made national headlines in the series of Bank debacles.

On November 17, The Reserve Bank of India (RBI) exacted a month-long moratorium on cash strapped Lakshmi Vilas Bank (LVB), a small private sector bank. 

Lakshmi Vilas Bank, after bleeding for several quarters straight and unable to raise capital to fund its activities, the bank hit by a severe deterioration in the lender’s financial position found itself limping and looking for a way out and forward.

The Common man and Customer of Lakshmi Vilas Bank

If you are a depositor of LVB, then according to the RBI and the Central government, withdrawal has been capped at Rs. 25,000 until December 16, 2020.

This cap includes savings, current, fixed deposits, and other deposit accounts.

According to the new rules, the moratorium will apply cumulatively on all accounts in case the customer has more than one deposit account with the bank. 

However, in its grandness, the RBI has said that the customers can withdraw up to 5 lakh in case of emergencies. These emergencies include payment towards higher education, medical emergencies, and marriage.

The Falling saga of Lakshmi Vilas Bank

Following an application by the Reserve Bank Of India, the moratorium was imposed due to grave deterioration in the bank’s financial position. In consultation with the central Government, the RBI under the provisions of the Banking Regulation Act 1949, ‘superseded the board of directors’

The RBI, in its statement, said the same has been done to protect the depositor’s interest in the lack of a credible revival plan.

The RBI released a draft scheme of the amalgamation of Lakshmi Vilas Bank with DBS Bank India Ltd, a wholly-owned subsidiary of DBS Singapore.

What is happening to the countries banking system?

In recent history, Bank frauds jumped more than double in the previous fiscal on delayed detection.   

In the year ended June 2020, bank frauds worth more than Rs 1.85 lakh crore were reported as compared with over Rs 71,500 crore in the previous fiscal, according to the RBI’s annual report for 2019-20.

Even though the RBI mandated the implementation of early warning signs by lenders. 

Public Sector Banks witnessed a 234% year-on-year rise in fraud cases, which contributed to 80% of the total such reported instances. Private banks, which reported a more than 500% rise, formed over 18% of the total fraud cases, according to the annual report of 2019 – 20 by the Reserve Bank Of India.

Frauds have been predominantly occurring in the loan portfolio (advances category), both in terms of number and value. There was a concentration of large value frauds, with the top 50 credit-related scams constituting 76% of the total amount reported as frauds during 2019-20,” the annual report said.

Recent Bank scams 

February 2018 – Punjab National Bank – Nirav Modi – PNB Bank staffers issued fake guarantees in excess of Rs. 13,800crore, over the years, aiding companies of two jewelry groups led by diamond magnate Nirav Modi and his uncle Mehul Choksi, they received credit from overseas banks to fund their businesses. 

March 2018 – IDBI Bank – C Sivasankaran, former promoter of Aircel, his son, and companies controlled by them – Axcel Sunshine LTD and WinWin D Oy – were accused by CBI of defaulting on loans worth 600 crores from IDBI Bank. 

September 2019 – Laxmi Vilas bank – Religare Finvest, a financial services firm, accused the bank management of misappropriating funds to the tune of Rs 790 crore, which was kept in fixed deposits

September 2019 – Punjab and Maharashtra co-operative (PMC) Bank – Co- operative lender was amid scam for under-reporting NPAs.

Why is the common man suffering?

India’s financial sector players have been suffering and battling with non-performing assets for years now. 

In each instance, the bank reports fraudulent activities primarily in the loan portfolio; the RBI caps the respective bank’s customers’ withdrawal amount.

While the cases keep mounting and investigations are on – it is the common man who is left out to suffer.

Most of the cases are in smaller banks, and the customers who bank with such banks are small-time investors from the lower-income bracket.

Many of them are on small salaries, and the caps on withdrawal or if they will be able to get their money from these banks is a question that raises itself from time to time.

India’s banking regulations seem to be floundering as compliance, rules, and checks are flouted again and again.

With the onset of the coronavirus pandemic and the economic slowdown, experts believe that lenders could witness more stressed assets in the near-term, thus making it more difficult for the common man to come to terms with job losses due to the pandemic, possible rise in medical expenditures and or meeting goals such as – marriage, education, and other emergencies.

These are small-time business owners, farmers, or low-income individuals whose average daily income is small and limited. Each penny for them holds much value, and the country’s banking system is giving them sleepless nights.

A person opens and keeps money in the bank with the view that it will be safe, and when necessary, they will be able to withdraw their funds according to their needs.

However, with the recent spurt in Banking frauds and the immediate response is to curtail these very people’s withdrawals.

The banking system needs to overhaul its compliance regulations and put in strict checks at every level such that these fraudulent activities are curtailed.

With the recently drafted scheme of amalgamation for LVB with DBS Bank of India, a cap in withdrawal amount comes as a rude shock to the depositors despite the Central Banks’ assurance to the depositors of the bank that their interest will fully be protected and safeguarded and that there is no need to panic.

In the case of PMC bank also, RBI without any market study implied a withdrawal limit of only 10,000 INR. 

The real question that arise is, whether its PMC bank, or laxmi vilas bank, or yes bank, why only a common man as a depositor has to suffer who has nothing to do with any bank scams, loan scams.

Why the limitations are put on someone who has no hand in any bank frauds, for what crime, a common man as a depositor is punished everytime. Why cant someone withdraw his own hard earned money?

What has happened to the judgement power of RBI, Are they not able to understand, whom to punish? Can anyone in RBI survive on a withdrawal limit of 10,000 INR for 6 months when their monthly salaries are more than 1.5-2.5 lacs per month? 

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