The central bank had received a lot of flak after it had placed a withdrawal limit of Rs 1,000 per account on Tuesday.
"On a preliminary assessment of the bank's latest depositor and liquidity profile as furnished by the administrator, RBI has decided, in the interest of depositors, to review the directions," the RBI said in a statement.
"Other terms and conditions of the said directive shall remain unchanged. With the above relaxation, more than 60 per cent of the depositors of the bank will be able to withdraw their entire account balance."
According to the RBI, it would review the multi-state urban cooperative bank's position and will continue to take further steps as are necessary to safeguard the interest of the depositors of the bank.
On Tuesday, the bank was barred from carrying out the majority of its routine business transactions for a period of six months on account of major financial irregularities that came to the Reserve Bank's notice recently.
The PMC Bank has been barred from granting or renewing loans and advances, making any investments, incurring any liability, including borrowal of funds or accepting fresh deposits, among others, without the prior written approval from RBI.
Described as a multi-state cooperative banking entity, the PMC Bank has branches in Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh and Madhya Pradesh.
Founded in 1984 in a small room in Mumbai, it has now grown to a network of 137 branches in six states and ranks among the top 10 cooperative banks in the country.
( With inputs from IANS )