PMC Bank Crisis: How Account Holders Can Avoid Defaulting on EMI and Insurance Premium While account holders have little control over their deposits, non-payment of EMI will affect credit score and benefits of an insurance policy will be lost if premium is not paid

The Reserve Bank of India (RBI) on Thursday relaxed the withdrawal limit for Punjab and Maharashtra Co-operative (PMC) Bank account holders to INR 10,000 from the earlier skimpy INR 1,000.

RBI ceased operations of PMC bank on 23 September for the next six months, putting its account holders in a quandary. This extreme step came after the central bank noticed financial irregularities in PMC Bank's system.

While the enhanced withdrawal limit of INR 10,000 will give depositors some relief, most of their worries still remain. Many customers may have given electronic clearance service (ECS) mandate with PMC Bank accounts for their loan EMIs, SIPs in mutual funds, insurance premiums or other utility bill payments. These automated debits will not get through.

What to do with EMI, SIP and insurance premium

Customers should immediately change their ECS mandate to another bank account to avoid defaulting on payments. A fresh ECS mandate can take up to seven days.

Don't panic if you are unable to create a fresh ECS mandate before the various payments' date. Every institution provides a grace period and offers other payment methods.

Insurance premium: Life insurance policies have a grace period of 15 to 30 days after the premium is due, after which the policy lapses. Kapil Mehta, co-founder and CEO, SecureNow, an insurance advisory firm, says that customers should find another payment mechanism to pay premiums within the grace period. "Unlike mutual funds, defaulting on insurance premium has a bigger impact. When you skip an SIP, money doesn't get invested for that month but your investments so far remain untouched. In the case of insurance, defaulting on one premium means you lose the policy and all its benefits," he says.

Insurers accept online payments through debit/credit card, mobile wallets and NEFT through their websites and also through cheque and demand draft that can be sent through post.

Loan EMI: Any loan EMI with PMC Bank will be adjusted with the balance in your account, as per RBI's notification. However, you will have to pay the bank if you have insufficient funds.

For other lenders, you will have to inform them about your situation and ask for an alternative payment method. Most importantly, make sure that you don't miss a loan EMI as it can affect your credit score.

Mutual Fund SIP: Most MF houses allow investors to pause their SIPs temporarily for three to six months. You can place a request with your mutual fund house to pause your SIP until you change the auto-debit request to another bank account.

Take note that most fund houses cancel SIP after the investor has missed three consecutive installments. Amit Suri, a Delhi-based financial planner, says depositors should give specific instructions to their mutual fund house about what they want to do with their SIPs. "Instead of simply defaulting on installment, the depositor should place a pause request so that after things get clear they can resume the same SIP and won't have to register for a fresh plan."

Dividend payout: Demat account linked to PMC Bank won't receive dividend or mutual fund investment proceeds. Depositors will have to open a fresh account with another bank to keep receiving dividend payouts.

Worry over bank deposit remains

Deposits up to Rs 1 lakh are covered by deposit insurance but any amount above that cannot be redeemed if the bank is made to fold its operations permanently. The Rs 1 lakh ceiling applies to the total of all deposits present in savings, current, recurring and fixed deposits and not separately.

In any case, it will be a long wait for depositors, say experts. "The PMC fiasco can take long to get resolved and the restrictions might get extended beyond six months. It is unlikely that some other bank will take over PMC bank seeing their current financial health," says R.C. Lodha, former executive director of Central Bank of India.