The Reserve Bank of India has ordered Punjab and Maharashtra Co-operative (PMC) Bank not to do any profession for six months and capped client removals at Rs 1,000, losing the lives of thousands of merchants, self-employed and daily wage earners into confusion. The governor has also designated an executive for the bank.

 Failures appear to have grown in the past six months amid tight financial situations and some uneven properties to real estate firms established in the commercial capital that became sour, creating it tough for the bank to meet its obligations.

 The unexpected freeze ahead of the festival period is set to change perceptions of customers and sell a big surprise to a country that is massively reliant on the cooperative bank building to service millions of customers in its cities.

 The development comes at an inconvenient time for the state legislature in Maharashtra, the BJP, and other political bodies such as the NCP and the Congress, which are perceived to have an excellent provider base among the customers of cooperative banks. The state goes to votes in October.

 “Investors will be entitled to withdraw a sum not surpassing Rs 1,000 of the total surplus in every savings bank account or current account,” RBI said in a report.

 “Without prior approval in writing from the Reserve Bank, (PMC Bank) will also not be able to give or renew any loans and allowances, make any investment, incur any responsibility including borrowal of supplies and recognition of fresh collaterals,” the report said.

 PMC’s collapse is unlikely to impact financial markets, or other private or public sector banks as cooperative banks have meagre dealings in money markets as they primarily depend upon deposits.

The deposit insurance guarantees savings of up to Rs 1 lakh, but anything beyond that would be repaid depending on the recovery under the RBI-appointed administrator.

 The collapse appears to have been sudden and is shrouded in mystery with the bank management voluntarily approaching the regulator to initiate the action instead of the regulator beginning the process, which is the practice.

 “Normally, the RBI initiates the action after regulatory supervision exposes wrongdoing and if it feels that the financials are weak for it to continue,” said a person familiar with operations. “Here, the bank came to the RBI and demanded that it freeze the business so that things could be taken back to order if at all, it could.’’

Industry experts say there were also mismatches between the data uploaded on the RBI server and manual entry data maintained by the bank. Speculation was rife that the bank had an exposure of Rs 400 crore to one of the real estate firms, HDIL, which filed for bankruptcy recently. PMC Bank’s chairman S Waryam Singh was on the board of HDIL in 2015.