PMC Scam: Shameful to Promise Just Rs 1 Lakh Insurance to Victims

PMC depositors shouldn’t be paid out insurance on a rate decided in 1993.

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Ajiib saneha mujh par guzar gaya yaaro, main apney saaey say kal raat dar gaya yaaro. Vo kaun tha, vo kahan ka tha, kya hua tha usey, suna hai aaj koi shakhs mar gaya yaaro. (A strange accident occurred with me last night, I got terrified by my own reflection. Who was he, where did he come from, what happened to him? People shrugged; some guy had just died).

These iconic lines penned by Shahryar for Gaman (1978 film) capture the pathos of four deaths in Mumbai in the fourth week following the PMC Bank scam/tragedy.

PMC Scam: Shameful to Promise Just Rs 1 Lakh Insurance to Victims

Click on the player below to listen to the podcast.

The PMC Bank scam was more audacious than any Bonnie and Clyde heist. A high-living father-son duo, Rakesh and Sarang Wadhawan, had 44 bank accounts in a loosely regulated outfit in Mumbai called Punjab & Maharashtra Cooperative Bank. They used these accounts to suck out nearly Rs 6500 crore, a mind-boggling 73% of the total loan book of the ill-fated bank.

This robbery took place right under the noses of RBI and the auditors. How?

The 44 Wadhawan accounts were “masked” by 21,000 – yes, get this, twenty-one thousand – fictitious accounts, many in the names of dead depositors. Allegedly, the bank allowed overdraft draw downs, with the cash travelling via hawala (laundering) channels to Dubai. The tainted money was “washed back” clean into PMC accounts as deposits.

While loans were given to the Wadhawans in the hidden-but-real ledgers, the fake loan accounts of 21,000 depositors were sent in the Advanced Master Indent to RBI. That’s “masking”, got it?


But what happened next was even more tragic. PMC’s stunned depositors were told they could withdraw a maximum of Rs 1,000 over six months. That’s it. One piffling thousand over six months. As a fully justified hysteria and anger got out of control, the hapless regulator increased the limit to Rs 10,000, then Rs 25,000 and now Rs 40,000.

Now pray, I would like to ask the officer who passed the astonishingly inexplicable order of “a maximum withdrawal of Rs 1,000 over six months” – why, sir, did you not pass a simple order saying “allowed to withdraw 100 percent of your cash up to a maximum of Rs 1 lakh”.

With a deposit insurance of Rs 1 lakh per aggregate account, such an order would have perhaps allowed over 90 percent of depositors to get their entire money out of the bank without causing even a penny’s loss to the exchequer. Everything would have been recouped from the insurance company.

Let me give you more context here. India’s deposit guarantee rule of Rs 1 lakh per depositor was decreed in 1993, over a quarter of a century ago. It’s remained unchanged since then, even as the economy has grown in decadal multiples and inflation has denuded the real value of cash.

Just inflation indexing this Rs 1 lakh deposit insurance would have made it Rs 15-20 lakh today and further indexing it to GDP multiples would have brought the figure close to Rs 1 crore, benchmarking us with the best in the world.

Remember, China guarantees deposits up to $81,000 per account. Even tiny/bankrupt Greece protects each depositor for EUR 100,000. But a 5-trillion-dollars-in-the-making India still does a measly Rs 1 lakh – just $1400 – per depositor. It’s shameful.


See the contrast between the power of positive governance versus the cancer of ban-this-ban-that policies. In one, you could have given each PMC depositor the ability to withdraw his/her entire cash up to Rs 50 lakh+, without causing a penny’s loss; but in the other, you passed an unconscionable order restricting people to “Rs 1,000 in six months”.

Unfortunately, Sanjay Gulati, Fattomal Punjabi, Dr Yogita Bijlani and Muralidhar Darra died.

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