After four days of struggling, the RBI-appointed administrator finally managed to file an FIR against senior officials of Punjab and Maharashtra Cooperative (PMC) Bank as well as Housing Development and Infrastructure Ltd (HDIL) on Tuesday, 30 September.
The Economic Offences Wing of Mumbai Police registered an FIR against ex-MD Joy Thomas, Chairman Waryam Singh and other PMC Bank executives. Vice Chairman and Managing Director of HDIL, Sarang Wadhawan, has been named in the FIR as well.
The officials have been charged under sections which deal with cheating, forgery, and criminal conspiracy among others.
The FIR alleges a possible fraud and wrongful loss of Rs 4,355 crore.
The Scale of Fraud
A preliminary probe found that the amount PMC Bank lent to HDIL was a whopping Rs 4,355 crore. Later, according to sources, in a confessional letter to RBI Thomas admitted that out of a total loan book of Rs 8,880, nearly 75 percent of the amount (about Rs 6,200) was sanctioned to HDIL and its group accounts.
Defying RBI norms, PMC Bank’s exposure to HDIL group is almost four times beyond the acceptable limit.
Changing the stance he had adopted earlier – that none of the board members were aware of the fraud – Thomas allegedly named Waryam Singh and a few other board members in his letter. He conceded that several people were in the know that HDIL had defaulted and received marked loans despite its inability to pay them back for years.
The PMC Bank-HDIL Connection
In his letter, Joy Thomas traced the ties between PMC Bank and Wadhawans back to 1986. Two years after PMC Bank started its operations in 1984, the bank feared closure due to ‘unlawful deeds’ by its members. That’s when Rajesh Kumar Wadhawan, brother of Rakesh Kumar Wadhawan, who is the present director of HDIL, intervened. Rajesh Kumar Wadhawan, the then director of Land Development Corporation, infused capital into the bank.
In 1986-87, the family infused further capital of Rs 13 lakh and started taking loans and advances from the bank in the late 1990s. Thomas says these accounts were regularised on a regular basis.
When again faced with a liquidity crunch in 2004, Rajesh Kumar Wadhawan deposited more than Rs 100 crore into the PMC Bank. Thomas makes it clear that by the time Rakesh Kumar Wadhawan started banking with PMC, 60 percent of the bank’s transactions were with the Wadhawan family.
Once HDIL became a listed company in 2007, the company’s funding requirements became ‘huge’.
When one of the company’s projects was terminated in 2013, HDIL started facing liquidity crunch. Large outstanding loans were still not classified as NPAs as it would have ‘affected the profitability of the bank’.
Are PMC Bank Directors Politically Connected?
Links have emerged between the Punjab and Maharashtra Co-operative Bank and the ruling BJP after it was reported that one of the co-directors of the bank is Rajneet Singh, the son of BJP MLA Tara Singh. Seventy-five-year-old Tara Singh, a four-time MLA from Mumbai’s Mulund constituency, has denied that his son played any role in the bank’s daily operations.
Speaking to The Indian Express, Tara Singh said, “My son had no role in the day-to-day operations of the bank. He only used to attend some meetings. I am not sure if he was aware of the issues at the bank.”
Mumbai Mirror reported that Daljit Singh Bal, another co-director at the PMC Bank, is the father of Inderjit Singh Bal, who heads the Shiv Sena’s Heavy Transport Union.
While speaking to the publication, Daljit Singh insisted the directors are not involved in the everyday activities of the bank.
But the key question is: How could loans worth Rs 6,200 crore be sanctioned to HDIL without approval from the board of directors?
How Did the Fraud Go Undetected for So Long?
The scale of the fraud committed by the management of the PMC Bank raises concerns over the efficacy of the multi-tier system of checks that failed to detect the fraudulent disbursal of loans year after year.
- Internal controls of the PMC Bank failed to adhere to the policies and procedures to reduce risk.
- The Board of Directors shockingly claim that they were unaware of the huge loans being disbursed to just HDIL Group and failed to act even when the company defaulted.
- The Concurrent Audit System overlooked irregularities.
- The Statutory Auditor did not sound an alarm over evergreening and masking defaults.
- By the time the Reserve Bank of India reacted, HDIL’s loan exposure amount had already crossed Rs 6,200 crore.
Sources say the Reserve Bank of India acted after a bank staff member turned whistleblower and complained to the regulator on 17 September. By 23 September, an RBI-appointed administrator took over the management of the PMC Bank, superseding the board.
The Quint reached out to RBI to find out more details about the lapses and this article will be updated if and when RBI responds to our queries.
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