RBI Claims India Banking Is ‘Safe And Stable’ After PMC Crisis

The Reserve Bank of India is trying to reassure savers that all is well after a recent crisis involving Punjab and Maharashtra Co-operative Bank (PMC).

In a tweet on Tuesday (Oct. 1), India’s central bank addressed “rumours in some locations about certain banks, including co-operative banks, resulting in anxiety to depositors.”

“RBI would like to assure the general public that Indian banking is safe and stable and there is no need to panic on the basis of such rumours,” the tweet said, according to the Financial Times.

The message comes after last week’s crisis at PMC, a lender with a deposit base of around $1.6 billion. After the RBI imposed limits on withdrawals from the bank, it was revealed that PMC was heavily exposed to a single property firm, Housing Development & Infrastructure, which shut down at the end of August. In fact, the bank’s exposures were well in excess of regulatory caps.

In addition, the country is also still reeling from the collapse of IL&FS and its aftermath, with shares in Indian banks falling about 5 percent over the past month.

“These are difficult times and the financial sector is passing through a bad phase,” said Sunil Kumar Sinha, principal economist at India Ratings. “Any bad news gets magnified.”

Unfortunately, analysts don’t think the turbulence will end soon.

“The financial crisis that began with the IL&FS debacle … seems to be entering its climactic phase,” said Saurabh Mukherjea, Mumbai-based founder of Marcellus Investment Managers. “The share price volatility for banks and lenders is expected to continue for the coming few months.”

It isn’t all bad news, though. Analysts report that the problems haven’t impacted state-owned lenders such as the State Bank of India and Punjab National Bank.”

“Even when [publicly-owned] banks were going through lean times, we didn’t see issues as far as depositor confidence,” said Shrikanth Vadlamani, vice president of the financial institutions group at Moody’s Investors Service.