PMC Bank: Ex-MD's Confession Exposes Terrible Inspection Standards of RBI
While lot have been said about the cosy relations shared by the Wadhwan family and Housing Development and Infrastructure Ltd (HDIL) with the Punjab and Maharashtra Cooperative (PMC) Bank, a confession letter by the bank's former managing director, exposes poor standards applied by the Reserve Bank of India (RBI) during bank inspections. 
 
In fact, the RBI officials who conducted inspection of PMC Bank prior to 2017, did not even bother to check details of stressed legacy account, reveals the confession from Joy Thomas, now-suspended managing director of PMC Bank.
 
In the confession dated 21 September 2019 and submitted to the chief general manager in the department of cooperative banks supervisions, Mr Thomas says, "In the RBI inspection prior to 2015, officers use to check mostly top few borrower accounts reported by the bank branch wise, therefore, these account did not come into picture and it was around 2017 onwards, when the RBI started asking for indent for the advances master. The stressed legacy accounts belonging to this group (HDIL) were replaced with dummy accounts to match he outstanding balances in the balance sheet. As the loans were mentioned as loans against deposits and were of lower amounts, they were never checked by RBI."
 
PMC Bank also failed to report since 2008 some of the large accounts to RBI due to fear of reputational risks, the former MD claimed. He says, "The size of the (PMC) bank in 2011 was around 57 branches with deposits of Rs2,824 crore and advances of Rs2,000 crore.
 
The exposure to HDIL group then was Rs1,026 crore. Further had we classified them as non-performing assets (NPAs), we would have to stop charting interest on these accounts and we could have made losses. The growth path of the bank would got hampered. The bank had created a name for itself in the market. The HDIL group always promised to clear the dues and also gave adequate security to back their loans."
 
Mr Thomas, in his confession also tried to alleviate the statutory auditors. He says, "Since the bank was growing, the statutory auditors, due to their time constraints, were checking only the incremental advances and not the entire operations in all the accounts. They validated the incremental loans and advances and scrutinised the accounts which were shown by us."
 
According to the ex-MD, the relations between PMC Bank and promoters of HDIL goes back to 1986, when the Rajesh Kumar Wadhwan, the then director of Land Development Corp and many other companies run by the Dewan family, along with his brother Rakesh Kumar Wadhwan, rescued the lender from becoming defunct. "This family infused capital, help the bank and also helped to bring the networth of the bank from negative to positive."
 
"In the year 1986-87, they further infused capital of Rs13 lakh and kept huge quantum of deposits to for revival of the bank. Since then the Dewan family started banking with the (PMC) bank as depositor. The loans and advances relation started in the late 1990s. These advances were mostly in the form of overdrawals in current accounts of various firms of the companies of the family due to cheque presented in clearing. These accounts were regularised on regular basis. The operations in these accounts were good and satisfactory."
 
In 2004, several cooperative banks like Maratha Mandir Co-op Bank, South Indian Co-op Bank and scheduled bank, Global Trust Bank, failed. Due to this, there was run on PMC Bank as well. "There were huge withdrawals of deposit of the bank from 13 August 2004.
 
The bank was honouring all the payments of deposits on 24x7 basis from 13th August till 17 August 2004. It was on 17 August 2004, when the confidence of the deposits started building up again. At the time of the run, many people helped the bank in gaining the position with the funds and stood behind the bank in support.
 
Mr Rajesh Kumar Wadhwan was one of the them and deposited more than Rs100 crore to tide over the liquidity crunch faced by the bank."
 
Since that time, PMC Bank became primary bank of the Wadhwans and HDIL. HDIL used to carry out all their transactions like purchase of lands and development in Vasai, Virar and Palghar area only with PMC Bank. "In connection with their business, their accounts used to get overdrawn and thereafter they used to get cleared also in due course of time.
 
In this process, our bank used to charge 18% to 24% interest from their accounts and earned very good profit. Thus, bank used to had a lot of income which helped in the growth of the bank."
 
During 2006-07, the Wadhwan group's total exposure in PMC Bank was about Rs500 crore. This was the time, when HDIL was listed on stock exchange. At that time, HDIL and the Wadhwan family become specialist in slum rehabilitation projects and were pioneers of the transferable development rights (TDR) in India, says Mr Thomas. 
 
TDR can be considered as an important raw material in the real estate industry as it allows the developer to build over and above the permissible floor space index (FSI) under the prevalent rules of the respective locations.
 
However, "Owing to our limitations of funding, they started banking with other banks to fulfil their growing funds requirement. Till 2008, the bank continued to earn high interest from the funding for the business of Wadhwan family." 
 
"In 2011-12, the government of Maharashtra came up with the major policy change regarding re-sale of TDR, which was the strong business for the HDIL group. And at the same time, the company's major project of slum rehabilitation in the area near Mumbai airport got cancelled due to the change in policy and subsequent changes in the government. In 2013, the project near the airport was terminated due to non-completion."
 
"This was the time, the (HDIL) group started facing liquidity crunch and they also started defaulting with all dues of all banks...Since they were in defaults, they could not raise fresh capital or loan and their project also got stalled. Slowly collections got reduced therefore some of the accounts become stagnant."
 
"As the loans outstanding were huge and if these were classified as NPAs, it would have affected the profitability of the bank and the bank would have faced regulatory action from RBI. Further this would have created reputation risk for the bank. As the HDIL group had a good record of clearing their dues with certain delays, we continued to report all the accounts as standard accounts."
 
"Though some of the accounts were not performing well, it was not brought to the notice of the board. The subsequent overdues of various loans were also not reported to the board. They were running many projects and were also in the business of taking over the companies many a time."
 
"The concealment of information from board, auditors and regulators was due to the fear of reputational loss. The volume of accounts were huge as the major business of the company were to acquire small pieces of lands from farmers and then develop the land and create infrastructure after receiving necessary approvals from the authorities. The concealment of the information was done from the board due to the fear of the reputation of the company as the cheques were of small amounts. Till 2019, some of the accounts were reported and shown but many legacy accounts were not reported to the board."
 
According to a complaint filed by PMC Bank to the economic offenses wing (EOW) of Mumbai police, the bank replaced 44 loan accounts, whose individual balance outstanding, including principal and interest, was significantly higher, with 21,049 accounts. 
 
Out of the 44 loan accounts, eight belong to the HDIL group of companies and one each of Rakesh Kumar Wadhwan and Sarang Wadhwan. As on 31 August 2019, Rakesh Kumar Wadhwan has an outstanding of Rs2,008.62 crore, while Sarang Wadhwan's outstanding was Rs137.16 crore. 
 
On the same date, HDIL had an outstanding of Rs1367.55 crore, Somerset Construction Pvt Ltd (Rs239.16 crore), Serveall Construction Pvt Ltd (Rs190.68 crore), Saphhire Land Development Pvt Ltd (Rs145.59 crore), Emerald Reltors Pvt Ltd (Rs145.10 crore), Awas Developers & Construction Pvt Ltd (Rs140.43 crore), Prithvi Realtors & Hotels Pvt Ltd (Rs131.96 crore) and Satyam Realtors Pvt Ltd at Rs129.46 crore. 
 
Total outstanding of the HDIL group and its promoters towards PMC Bank is Rs4635.62 crore as on August 2019, the complaint shows.  
 
"These 21,049 accounts were actually not created in the core banking solution (CBS) of the bank, instead (these) were mere entries in the advances master indent submitted to RBI for conducting their inspection for the year ended 31 March 2018," the complaint filed by Jasbir Singh Matta, manager for recovery in PMC Bank shows.
 
Here is the letter sent by Joy Thomas to RBI…
 
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    COMMENTS

    Nagaraju Bommanahalli

    2 weeks ago

    In India nobody knows how Indian companies are doing fraud from the beginning to last ,for example a big business men will start the company in India as below .His companies actual value is Rs2000crores but with the help of the auditors,Banks,and chartered accountants he made his company s values to RS 6000 crores by book adjustment with bribe and he call IPO that is in share market and collect Rs10000 crores in share market, first he pumped 60%of money to foreign country in the name of business and will deposit most of the money in his name next he will file bankruptcy due to losses and will write off all the loans this is the business doing in India ED is doing drama ICICI Bank chandakochar is well known to all she done huge fraud in ICICI Bank, this drama of enquire is doing from past one year, but still she is not arrested, reasons In this icici bank scam all SEBI auditors ED RBI central government rating agencies big leaders of all parties involved.central government making all efforts to avoid arrest these fellows,if arrested all all foreign country become knows most of the Indian companies running on bogus and take away all foreign investment,then India become bankruptcy.This is well known by central government hence avoiding all efforts to arrest directors of icici bank chandakochar DHFL jetairways Videocon kingfisher airline PNB bank head [email protected] etc . wait in few months most of the common people investment in icici bank NBFC PSU banks equity NCD mutul funds become Zero

    Suketu Shah

    2 weeks ago

    The problem is voters of India.We get the govt we vote for.The public is stupid.No one votes for NOTA and then complaints for 5 yrs and again votes for the same people and complains.The problem is from the very top.More scams coming up it seems-big ones.

    Aditya G

    2 weeks ago

    Forget this. Talent is drying up. In the next 10-20 years, institutions like RBI and SEBI will be staffed with jokers. This is the real risk I'm seeing here. When you can't find talent, no matter how good a business is, it will not do well over the long run. That's precisely what's happening to these public institutions.

    REPLY

    SURAJIT SOM

    In Reply to Aditya G 2 weeks ago

    @Aditya. You mean these crooks were fools ? If anything ,they are too much "talented". May be you will say Mama-Bhanja ,Mallya are fools also !!! Wall Street etc are full of highly qualified financial experts. Then what happened in 2008 ? Why legendary institutions like Lehman Brothers get blown up ? Bob Woodward wrote a book called " Maestro" about Greenspan. Now this former Fed chairman (for twenty years) is widely regarded as one who contributed heavily to the culture of reckless speculation and subsequent market collapse in 2008. PMC -like cases are orchetrated by cunning psychopaths with zero integrity. Buffett talks of three qualities for business: integrity, intellignce and energy.

    Govinda Warrier

    In Reply to Aditya G 2 weeks ago

    Without questioning Aditya's wisdom or ability to predict what can happen after 10/20 years, let's discuss the immediate issues concerning savings, bank deposits and how best to save the institutional system in the financial sector from sinking. I'm not for ignoring the talent-deficit issue on which Aditya has thrown light. But TMC Bank episode is shockingly unique, as more and more revelations are telling us. This not something we should brush aside and forget as is being suggested. Please don't divert attention from the main issue by lamenting about talent.

    Gopalakrishnan T V

    2 weeks ago

    Sorry state of affairs. How the Board was kept in dark and how the Directors of the Board did not bother to understand the realitities of the bank's functioning should have come to the notice of the regulators and Statutory auditors. The Board has miserably failed to study the balacesheets and profit and loss accounts of the bank for years is a mystery and how the regulators both The RBI and the Registrar of Cooperative Societies missed to identify the risks the bank had posed to the depositors and regulators themselves for their lapses needs an explanation . THE FACT OF THE MATTER IS THAT BOTH HDI L AND THE BANK HAD TAKEN ALL THE STAKEHOLDERS WHO INCLUDE THE ECONOMY , THE DEPOSITOS, THE SHAREHOLDERS AND THE AUTHORITIES FOR A RIDE AND WHO WILL ULTIMATELY BEAR THE BRUNT NEEDS TO BE SEEN.

    Kochar Bipin

    2 weeks ago

    Every monsoon, many Mumbaikars die due to building collapses - yet lacs of Mumbaikars, who have made Mumbai the most prosperous city in the country with a budget higher than several states,
    are forced to live in slums and decrepit unsafe housing as most of the SRA and other redevelopment projects have stalled due to huge cost escdlations due to delays in approvals and the greed of Municipal Corporation of Greater Mumbai, India's richest city with a budget higher than many states. The Government should immediately step in and ensure that the SRA projects are swiftly completed by extending home loans to the beneficiaries of SRA projects whose dispersal is based on the progress on the construction.

    Govinda Warrier

    2 weeks ago

    Madam Sucheta Dalal
    Many thanks for publishing this article. Yet to read the text of the letter published alongside. Will, during the day. Beyond concentrating on PMC or RBI, let's dig out the rut in the system for the benefit of future savers and investors by converting this into a case study

    Hemlata Mohan

    2 weeks ago

    Such being the quality of RBI inspection, how are they in a position to qualify other CAs who conduct audits?

    shadi katyal

    2 weeks ago

    We were assured that Chowkidar will nukat Corruption but we fisd tht nation has lost more money by such bank scams as compared to all those years of UPA, Can Modi or Finance Minister tell the nation that how one after another such scams are still going on..
    Question is simple and that most of such scams are by members of BJP and maybe hey feel Mukat Bharat sounds better than Mukat Congress
    RBI and Center should have some kind of insurance for the depositors like in USA one is protected upto $ 100,000.00 per account.
    Modi can do favor to Ambani'Group by giving all insurance business to Reliancer as in the vase of

    REPLY

    dvn

    In Reply to shadi katyal 2 weeks ago

    Please read the article the Scam was during UPA era. S... has hit the fan with the immanent bankruptcy of HDIL.

    Chetan Kadam

    In Reply to shadi katyal 2 weeks ago

    So all these frauds happened after 2014 na???

    suneel kumar gupta

    2 weeks ago

    Now people r at the mercy of govt. Frel very sorry of sr. Citizens and small businessmen

    SURAJIT SOM

    2 weeks ago

    Most of the depositors who have lost money might not even comprehend the accounting shenanigans of all those MD, CEO, Inspectors etc and their modus operandi. All these " experts" at the helm of affairs knew the tricks of the game and misused their knowledge to the hilt; their suitcases full of poor depositors' money. Anyway fudging data to cheat is centuries old. One goes to doctor to get cured. But the doctor make the desease worse for money !! Of course , some cynics would say : the patient went to the wrong doctor !! Therefore it is his fault !!! And it gets repeated again again !!!

    REPLY

    Govinda Warrier

    In Reply to SURAJIT SOM 2 weeks ago

    Aptly worded, insightful, brief observation. Let's take the discussion forward without getting immediately diverted into UPA-NDA politics and fixing responsibilities (In the long term, all these are important and necessary). The doctor's example seems to be apt in this case. If I manipulate the diagnosis or tamper the diagnostic tools to hide my ailments, the specialist's treatment may go wrong in my case. True, the specialist should also be sure about the reliability of the pathological/radiologist expertise.

    PMC Bank case raises question on role of RBI, auditors: Anurag Thakur
    The loan irregularities at the Punjab and Maharashtra Co-operative (PMC) Bank raises questions on the roles of regulator (RBI), auditor, independent directors and bank directors, Minister of State for Finance Anurag Thakur said on Monday and added that the government will look into all the areas because eventually it is going to impact the common man.
     
    This comes in the wake of the Reserve Bank of India ordering the PMC Bank not to do any business for six months and capped depositor withdrawals at Rs 10,000. The regulator has also appointed an administrator for the bank.
     
    Currently the Reserve Bank of India is looking into the PMC Bank case. Recently Finance Minister Nirmala Sitharaman had said the government is watching the developments there and will see what best can be done for the affected people. 
     
    "Government will wait till there is more clarity in the matter. At this stage, the RBI is handling it. Let a comprehensive picture emerge, post that the government will have to see what best can be done so that some assurance can be given to people who are affected," she had said. 
     
    Responding to a query if RBI made a late call on decisions on PMC Bank, Thakur said: "The role of regulator, is very important at the same time role of auditors, bank officers, directors are equally important and what they have been doing for the last so many years and people responsible for this. 
     
    "The regulator (RBI) is looking into that. At this stage I would not say much. But the reports emerging on the bank in public is very shocking. It is very important and an eyeopener for the banking sector.
     
    "Such instances should not take place. It also raises a question on various people whether it is regulator, auditor, directors and officials," he said on the sidelines after inaugurating a museum at the country's second largest bank, the Punjab National Bank.
     
    Asked since the role of auditors will be there to investigate, will the Ministry of Corporate Affairs look into the alleged irregularities, he said: "The government will look into all the areas in the case, wherever required, because eventually it is going to impact the common man and the banking sector overall." 
     
    On a question in the wake of recurring frauds like Nirav Modi and now PMC Bank, Thakur said "an issue that keeps repetitively coming to everyone in such cases is what's the role of auditors, independent directors, bank directors, officials or regulator (RBI) then? 
     
    "After all they meet to take decisions, who are the decision makers, and what are those decisions and if something is hidden from the government and public and if not, why such frauds happen even in the knowledge of these people, this is a matter of great concern." 
     
    According to sources, of the Rs 8,880-crore loan book (as of September 19, 2019) that PMC had, more than Rs 6,500 crore or over 73 per cent of the assets are with the bankrupt real estate HDIL group only, which has been an NPA account since the past two-three years and yet the bank kept on lending to the once leading slum re-developer. 
     
    Asked if the government is looking at cutting personal income tax after slashing the corporate taxes to boost demand, Thakur said: "Modi government has already given individual tax payer's relief of upto Rs 5 lakh from Rs 2.5 lakh earlier. 
     
    "We have already brought down the corporate tax rates for the existing tax filers to 22 per cent from 30 per cent and for the new investors who start their production before 2023, it's going to be 15 per cent. 
     
    He said he is of the view that NCLT should be the last resort for banks to go for recovery.
     
    There are many good options before that for the bankers to recover more amount and also for the other stakeholders. If everyone can sit together and work out a formulae they will get more money out of the NPA assets resolutions, Thakur said. 
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    PMC Bank: HDIL Exposure Is Rs6,500 Crore or about 73% of the Lender's Total Loan Book, Says Report
    Following the delayed action by Reserve Bank of India (RBI), more skeletons are coming out of the closets of Punjab and Maharashtra Cooperative (PMC) Bank. According to a report, Joy Thomas, now suspended managing director (MD) of PMB Bank, admitted before the banking regulator that the lender's actual exposure to realty firm Housing Development and Infrastructure Ltd (HDIL) is Rs6,500 crore or about 73% of the Bank's total loan book.
     
    Quoting sources, a report from BloombergQuint, says, the admission from Mr Thomas came after a board member revealed that the actual balance sheet of PMC Bank to the RBI. 
     
    This raises further questions about the poor quality of RBI's supervision and how it seems to be abdicating all responsibility on the claim that it shares regulatory responsibility with the Registrar of Cooperatives. Was PMC Bank's chairman, S Waryam Singh, being part of the HDIL promoter group not a matter of significance? Did he meet RBI’s ‘fit and proper’ criteria to be chairman of the board?
     
    Also it is time to probe role of RBI officials by the Serious Frauds Investigation Office (SFIO) like they did in the Infrastructure Leasing & Financial Services (IL&FS) matter.
     
    Initially, RBI was not even giving any reasons for taking action against PMC Bank under sub-section (1) of Section 35A read with Section 56 of the Banking Regulation Act. Later, on 26 September 2019, while increasing the withdrawal limit to Rs10,000 from Rs1,000 per account, the banking regulator admitted that action against PMC Bank was "necessitated on account of major financial irregularities, failure of internal control and systems of the bank and wrong and under-reporting of its exposures under various off-site surveillance reports to RBI that came to the Reserve Bank’s notice recently. Therefore, the board of the (PMC) bank has also been superseded under sub sections (1) and (2) of Section 36 AAA read with Section 56 of the Banking Regulation Act and an Administrator has been appointed. The Administrator is taking necessary steps in this regard." 
     
     
    The source quoted in the earlier report, told PTI that non-disclosure of the actual HDIL status (non-performing asset-NPA since the past two-three years) and the quantum of the exposure to the group was revealed by one of the PMC board members to the RBI, forcing Joy Thomas to confess the misreporting. 
     
    According to the source, Mr Thomas wrote a four-and-a-half page detailed letter to the banking regulator giving details of how he, along with six key people who include a few board members, including chairman Waryam Singh and one or two senior bank officials, were sanctioning loans to the HDIL group.
     
    As reported by Moneylife, there was a close nexus between the HDIL group and the Bank through Waryam Singh, the chairman of PMC Bank. He was director of several companies associated with HDIL group and the Wadhwans.
     
    Following the death of Charanjit Singh Chadha on 12 January 2015, PMC Bank board elected Waryam Singh as new chairman for five years till 2020.  
     
    Mr Singh, in 2009, was listed among individuals forming part of the promoter group of HDIL group in an information memorandum for issue of privately placed debentures. Even if he resigned in 2015, it is clear that the deep relationship with HDIL and its many group companies persisted.
     
    HDIL’s annual report for 2015 shows that S Waryam Singh’s shareholding in HDIL is 1.91%, which is next only to the Wadhwan family holding.
     
    According to a former shareholder and analyst, Waryam Singh’s held this stake in HDIL since 2007 and, at that time, it was worth around Rs1,000 crore at stock prices prevailing then.    
     
    Waryam Singh’s association with the Wadhwans dates back to 17 January 1997, when he was made director of DHFL Property Services Ltd from where he resigned on 27 March 2009. Before resigning in March-April 2015, Mr Singh had served as director of HDIL for almost nine years. Data from Zaubacorp.com shows Mr Singh has served as director of several HDIL group companies for several years.
     
    As per data from Zaubacorp, Waryam Singh has been shown as director of 18 companies, many of them related with the Wadhwans.
     
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    COMMENTS

    Praveen Rathore

    2 weeks ago

    73% exposure to single group is the clear violation of RBI circular on Master Circular- Exposure Norms and Statutory / Other Restrictions - UCBs which stated that for UCBs- Primary (urban) co-operative banks are required to fix, with the approval of their Board of Directors, exposure ceiling in relation to bank's capital funds. The exposure for the purpose shall comprise both credit exposure (loans and advances) and investment exposure (Non SLR) as detailed at para 2.2.2(B) so that -

    (i) the exposure to an individual borrower does not exceed 15 per cent of capital funds, and

    (ii) the exposure to a group of borrowers does not exceed 40 per cent of capital funds.

    2.1.2 The exercise of computing the exposure ceilings may be conducted every year after the finalisation and audit of balance sheet of the bank and the exposure ceilings may be advised to the loan sanctioning authorities and the investment department in the bank.

    In view of the linking of shareholding to lending, accretion to or reduction in the share capital after the balance sheet date, may be taken into account for determining exposure ceiling at half-yearly intervals, with the approval of their Board of Directors. Accordingly banks may, if they so desire, fix a fresh exposure limit taking into account the amount of share capital available as on 30th September. However, accretion to capital funds other than to share capital, such as half-yearly profit etc., will not be eligible for reckoning the exposure ceiling. Banks should also ensure that they do not take exposures in excess of ceiling prescribed in anticipation of infusion of capital on a future date.

    S Balakrishnan

    2 weeks ago

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