‘PMC officials hid fraud loans’: RBI to Bombay HC

An annual inspection of crisis-hit Punjab and Maharashtra Co-operative (PMC) Bank has revealed that some bank officials had tampered with the lender’s core banking system to hide fraudulent loan accounts of real estate developer Housing Development and Infrastructure Limited (HDIL), the Reserve Bank of India (RBI) told the Bombay high court in an affidavit on Tuesday.

The banking regulator said access codes were given to “problematic accounts” to ensure “restricted visibility”, and these accounts could be accessed only by 25 of the bank’s 800 employees.

The RBI said the HDIL group loan accounts were excluded from system’s identification of non-performing assets (NPAs) and also did not reflect in the loan account display system of the multi-state cooperative bank.

The affidavit was filed in reply to a bunch of petitions over the ₹4,855-crore fraud at the bank and a moratorium imposed by the RBI on withdrawals from the bank. While the Consumer Action Network challenged the moratorium, other petitions were filed mostly by individuals, raising personal grievances.

The fraud came to light when, in September, the central bank clamped regulatory restriction on the urban cooperative bank after it discovered financial irregularities, including hiding and misreporting of loans given to HDIL. It superseded the board and the management of the bank and appointed a former RBI official as the administrator at the bank.

Since the crisis, the agencies have arrested five people including HDIL promoters Rakesh Wadhawan and his son Sarang. HDIL owes more than ₹6,500 crore to the bank.

The RBI affidavit stated that loans were sanctioned to HDIL group companies by then managing director K Joy Thomas on his own, and found no mention in the minutes of the loan committee, recovery committee or board of directors, a vital source of information for statutory inspections.

The affidavit said that in order to adjust its balance sheet, the bank had created 21,049 fictitious accounts so the master data could tally with loan disbursals of ₹7,457.49 crore.

Relying on newspaper reports stating that PMC Bank had been flouting basic banking norms and regulations for the past six to seven years, the petitioners alleged the RBI failed to monitor functioning of the bank, but was now penalising the depositors by imposing restrictions on withdrawals and not allowing them to withdraw their own, hard-earned money.

A Wadala resident in his plea said he had collected funds to the tune of ₹58.50 lakh in the family’s savings accounts and in a fixed deposit with PMC Bank for his daughter’s marriage next month. He has approached the high court challenging the moratorium, voicing concern that the marriage may be called off for lack of funds.

Another customer, a Sion resident, said that his son was studying civil aviation, which is mandatory for his job. He has completed the first of four sessions of the course, spending ₹5.5 lakh, and he will require an additional ₹16.5 lakh immediately, failing which he will have to abandon the course.

PMC Bank is a multi-state urban cooperative bank with 137 branches in seven states and was considered one of the top 10 cooperative banks in India. According to its 2018-19 annual report, the bank had more than 1.7 million depositors, a deposit base of ₹11,617 crore and advances totalling to ₹8,383.32 crore as of March 31, 2019.