Scribd
Upload
108 views3 pages

PMC Banks in India

The Punjab & Maharashtra Cooperative (PMC) Bank fraud involved loans of over Rs 4,355 Cr to Housing Development and Infrastructure Ltd (HDIL) and its associates, accounting for 73% of PMC's loan portfolio. A group of PMC employees blew the whistle on over 20,000 fake accounts being used to hide the loans. Customers faced restrictions on withdrawing their deposits, with withdrawals limited to Rs 1,000. The RBI and auditors failed to catch signs of the growing exposure to HDIL. The crisis highlights the need for improved oversight of cooperative banks.

Uploaded by

Vanshika
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
108 views3 pages

PMC Banks in India

The Punjab & Maharashtra Cooperative (PMC) Bank fraud involved loans of over Rs 4,355 Cr to Housing Development and Infrastructure Ltd (HDIL) and its associates, accounting for 73% of PMC's loan portfolio. A group of PMC employees blew the whistle on over 20,000 fake accounts being used to hide the loans. Customers faced restrictions on withdrawing their deposits, with withdrawals limited to Rs 1,000. The RBI and auditors failed to catch signs of the growing exposure to HDIL. The crisis highlights the need for improved oversight of cooperative banks.

Uploaded by

Vanshika
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

About the Punjab & Maharashtra Cooperative (PMC) Bank

This bank was established on February 13, 1984 as a single branch cooperative Bank. Punjab
& Maharashtra Cooperative (PMC) Bank is a Scheduled Urban Co-operative Bank with its
area of operation in the States of Maharashtra, Gujarat, Delhi, Goa, Karnataka, Madhya
Pradesh and Andhra Pradesh. PMC is the largest cooperative bank to be put under scrutiny by
the Reserve Bank since the 2001 Madhavpura Bank crisis that was linked to a stock market
scam.

Detail of the Bank fraud;


The crux of this bank fraud is that the higher management of the PMC bank has given huge
loan to the Housing Development and Infrastructure Ltd (HDIL) and its group entities. This
fraud case is related to transfer of 70% of the total credit facilities of the PMC bank to HDIL
and its associated companies. The total amount of the bank fraud was Rs 4,355 Cr. Now, the
total NPA of the bank has grown to 73%. The PMC bank allegedly favoured to the promoters
of Housing Development and Infrastructure Ltd (HDIL) and allowed them to operate
password protected ‘masked accounts’.
It is found that around 21,049 bank accounts were opened by bogus names to conceal 44 loan
accounts. The bank's software was also tampered to conceal these loan accounts.
This bank fraud case is busted by a bunch of women employees of the credit department of
the PMC bank. These employees told to the RBI that they were aware of the ghost accounts.
When this case came in the light; then customers of the PMC bank rushed to the PMC bank
to withdraw their hard earned money but they were refused to give their deposited money and
withdrawal limit is set by the bank.
The disclosures made by Joy Thomas, former Managing Director at PMC Bank, shows how
various dubious transactions in the bank were kept hidden since 2008. The accounts were
managed in a way that neither the statutory auditors nor the periodical scrutiny by the
Reserve Bank of India were able to catch the on goings at the bank.
Thomas’s letter to the RBI stated, “The loans outstanding were huge and if these were
classified as non-performing assets, it would have affected the profitability of the bank, and
the bank would have faced regulatory action from RBI...this would have created a reputation
risk for the bank. As the HDIL group had a good record of clearing their dues with certain
delays and gave the majority of business to the bank, since 1990s, we continued to report all
the accounts as standard accounts.”

Following the arrests, PMC Bank appointed Grant Thornton, as suggested by the police, to

conduct a forensic investigation into the allegations made by ex-MD Thomas. What’s causing

worry is the magnitude of the fraud -  Thomas confessed to the Reserve Bank that PMC’s
exposure to the bankrupt HDIL goes past  6,500 crore rupees  - four times the regulatory cap,

or 73% of its entire assets of 8,880 crores.

This goes beyond a failure of oversight, and would require top-level complicity. PMC’s
annual report shows it to be a profitable lender with a capital adequacy ratio higher than the
12% minimum requirement and a bad-loan ratio of under 4% – almost respectable by the
current standards of India’s banking industry. If the news reports are correct, the solidity
portrayed by that document is a fiction.

The crisis at PMC Bank is a symptom of a deeper malaise plaguing around 1,500 co-

operative banks in the country. Typically, these banks are loosely monitored as they fall

under the dual regulation of both the state government and RBI. While the central bank is

responsible for supervision, other activities like bank management are monitored by the

Registrar of Co-operative Societies.”

Effects on the customers

. In some PMC branches, officials were entirely absent, leading to some panic. ATMs were

shut and security guards were seen putting up an apology from the bank’s MD. Customers

were hit hard - they could withdraw only up to Rs 1,000 from the bank, irrespective of the
type, total balance or the number of accounts. If your account was linked to monthly utility

services, the payments wouldn’t go through. There were restrictions on loan offsets and fixed

deposits.

Media reports indicated that 5-10% of total deposits were withdrawn on a daily basis since 19

September 2019. Such withdrawals could be as high as 29% of total deposits. As on 31

March, the bank’s total deposits stood at 11,617 crore rupees. Bombay High Court lawyer

Vinod Sampat told Bloomberg that, legally speaking, there’s no way for the housing societies

or the individual depositors to get back their money as this is a systematic failure which

occurred because of lack of due diligence on the part of government authorities like officials

from RBI, PMC Bank, auditors, among others. For the housing societies and individual
account holders, this is going to be only wait and watch situation. Chances of getting back

their entire money are quite faint.”

Also, the annual report audited by Lakdawala and Co. shows that the Bank had reported a net

profit of 99.69 crore compared to 100.90 crores a year ago. Capital adequacy of the bank

stood at 12.62% and net non-performing loans were at 2.19%. Despite this, the regulator and

the bank’s auditors seemed to have no inkling of the fact that the Wadhawan group’s

exposure, which stood at approx. 500 crore till 2006-07, had ballooned to 6,500 crores. In

fact, as recently as August 2018, PMC Bank had disbursed a loan of 96.5 crores to HDIL - to

settle its dues with Bank of India and thereby prevent it from initiating insolvency

proceedings.

Following the investigations by the ED and Mumbai Police, the Institute of Chartered

Accountants of India has decided to probe Lakdawala & Co. It also emerged that there are

old links between PMC Bank and the Wadhawans. That relationship goes back to the mid-

1980s. In 1986, just two years after it began operations, PMC Bank was on the verge of

financial collapse, where Wadhawans put Rs 13 lakh into the bank that fiscal. At another
time, he infused as much as 100 crores to help the bank tide over a liquidity crunch. The

change started when the group started facing a liquidity crunch in 2012-13.

Now, the Enforcement Directorate (ED) has sealed the assets of Rs 3,500 Cr. of the HDIL
group and the HDIL chief Rakesh Wadhawan and his son, Sarang Wadhawan have been
arrested by the Mumbai Police.
The need of the hour is that the central government needs to make some strict policies to
prevent such banking frauds in the country.

You might also like