PMC Bank Fraud: RBI Says the Bank Submitted Fraudulently Manipulated Data on HDIL Loans
Moneylife Digital Team 20 November 2019
The Reserve Bank of India (RBI) has virtually admitted that it was 'cheated' by the management of the scam-hit Punjab & Maharashtra Cooperative (PMC) Bank.
Especially, RBI says PMC Bank had submitted fraudulently manipulated data to the central bank for sample checks, but the sample of accounts picked for inspection did not contain undisclosed accounts of Housing Development and Infrastructure Ltd (HDIL) group companies.
In its affidavit submitted to the Bombay High Court, the central bank says, "The disclosed HDIL related accounts were seen and majority of them were assessed as non-performing assets (NPAs). Further non-monitoring of end use of funds and conflict of interest of Waryam Singh as chairman of PMC Bank and as a former director of HDIL group was also commented upon in the report along with the attempt by the bank to show disclosed accounts of HDIL group as standard by sanction of new loans to close or regularise the old NPA accounts... Consequently, the assessed NPAs of the Bank were significantly higher than the reported NPAs."
"The Bank had also sanctioned mortgage overdraft limits to a wholly-owned subsidiary of the HDIL while the present (now arrested Waryam Singh) chairman of PMC Bank, was also a director of the company -- a clear conflict of interests and violation of the RBI's Master Circulars... Waryam Singh also chaired a PMC Bank board meeting to ratify the approval of mortgage overdraft in which he was directly interested, again contravening RBI norms."
"The inspection team had also established the relationship between the chairman of the Bank and HDIL promoters, which might have acted as the primary consideration for sanction of credit facilities and resulted in their utilisation to pay off one-time settlement dues with other landers," RBI says.
Moneylife had raised the issue of conflict of interest of Waryam Singh and HDIL promoters. We had written about the association between Mr Singh and HDIL group. 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. (Read: While RBI Acts Strict about Giving New Banking Licence, How Was a Director of HDIL Group Controlling PMC Bank?)
Coming back to the RBI affidavit, which states that the scale of violation and the connected lending that was established, based on available records, was much lesser due to the 'camouflaging' resorted to by the PMC Bank, and hence what was noted was 'flagged', though it was not found to be significantly affecting the Bank's financial health. 
Few days before its restrictions, on 19 September 2019, RBI sent its team for annual inspection of PMC Bank and thorough scrutiny of HDIL accounts, especially the Bank's exposure to the group. 
Detailing the "modus operandi of hiding the information related to HDIL exposure" employed by the PMC Bank, the RBI affidavit says they (Bank executives) tampered with management information systems and NPC identification process. In this, the Bank had given special access codes on Finnacle, its core banking software (CBS) for HDIL accounts with restricted visibility to less than 25 out of PMC Bank's 1,800 staffers.
RBI says, "While running the script for system identification of the NPAs, it deliberately excluded the HDIL accounts which were thus omitted from the system generated reports of NPA accounts, and ditto with the overdrawn accounts list.
The PMC Bank's own MIS software called 'Opine' had a script for generating lists of newly sanctioned or disbursed accounts, but the undisclosed loan accounts were excluded from this list."
"These irregularities were not highlighted by the PMC Bank's concurrent auditors at the Sion Branch, where all these undisclosed accounts were parked though concurrent audits were carried out every month," the affidavit pointed out.
In addition, the undisclosed loan accounts to HDIL group, sanctioned and renewed with approval from K Joy Thomas, the then managing director (now behind bars) of the Bank. These sanction of loans was not recorded in the minutes of the loan committee, recovery committee, or the board of directors, though they constituted a vital source of information for inspection, RBI says.
Further, the affidavit says, "PMC Bank submitted false information in the returns on single party or group exposures filed through offsite surveillance system (OSS) to the RBI, which again is a document relied upon by the central bank inspectors, by not disclosing large advances relating to the HDIL group that constituted its biggest exposure."
Earlier in October 2019, the economic offences wing (EOW) of Mumbai Police told the court that PMC Bank replaced 44 loan accounts of the HDIL group with over 21,000 fictitious loan accounts, and camouflaged defaults by the group. In its plea, while seeking custody of HDIL's Rakesh Wadhawan and his son Sarang, the EOW stated, "PMC Bank replaced the 44 loan accounts of HDIL and its group of companies, whose outstanding balance were significantly higher, with 21,049 fictitious loan accounts while submitting details of loans to RBI."
According to RBI, PMC Bank was showing fictitious profits on its books. It says, "...the inspection of the books of the Bank has now indicated huge loss and significant deposit erosion as per preliminary findings of inspection. This was hidden by the Bank by fictitiously showing profits and using the same inter-alia to declared dividend and pay higher salaries. The profit came by treating NPA accounts as standard (non-NPA) accounts by way of 'concealing' major portion of these accounts...for NPAs no profit can be booked till it is actually received, while in case of regular accounts, profits are accounted for the broken period on accrual basis pending actual receipt. Thus, false and non-existent profits were booked by the Bank."
What the RBI had stated in its affidavit is also confirmed in the forensic audit report. The preliminary report shows that PMC Bank never showed HDIL as a bad loan or NPA and the Bank created fictitious accounts to grant loans to the Wadhawan company.
Last week, the EOW arrested Rajneet Singh, son of Sardar Tara Sing, former member of legislative assembly (MLA) from Mulund in the PMC Bank fraud case.
Rajneet Singh was director of PMC Bank before the RBI put restrictions on the lender. He was also on the recovery committee of the Bank.   
The EOW had also arrested Jayesh Sanghani and Ketan Lakdawala, the two auditors who did the statutory audit of fraud-hit PMC Bank. 
 Last month, the ED had seized and identified movable and immovable assets worth more than Rs3,830 crore owned by HDIL, the company directors and promoters, as well as official of PMC Bank and others related entities in the fraud case.
The PMC Bank has been put under restrictions by the RBI since September after an alleged Rs4,355 crore scam came to light, following which the deposit withdrawal was initially capped at Rs1,000, causing panic and distress among depositors. The withdrawal limit has been raised in a staggered manner to Rs50,000.
Founded in 1984 by S Gurcharan Singh Kochhar from a small room in Mumbai, the Bank had now grown to a network of 137 branches in six states and ranked among the top 10 cooperative banks in the country.  
P S Krishnan
4 years ago
Why should the RBI team that was responsible for monitoring PMC Bank not be sacked and why should their retiral benefits not be redistributed amongst PMC depositors.

@Sucheta. Why should PMC Bank incur Rs 1 Crore / day on operational expenditure when there are no regular business operations? Employees (lots of them would have been aware of the scam) should be dismissed and the Bank should operate on minimal employees. Priority should be to return Deposits. Since this scam has been pulled off in partnership with or without RBI's involvement, Depositors should be repaid through RBI reserves and when the outstanding amount is realized by PMC administrators, RBI should be paid back by PMC Administrators. Why should depositors suffer for RBI's lapses and why should employees / co-conspirants of the scam receive periodic salaries, same applies to RBI too
Gopalakrishnan T V
4 years ago
RBI seems to havefailed both in its offsite and onsite surveillance and given a long rope and confodence to the PMC banks Directors, Auditors and Executives to play havoc with depositors money mercilessly. This has been going on for decades is a poor reflexion on the regulatory and supervisory system in vogue without any sort of checks and balances allowing the bank to meddle with the Management Information System and violate all sorts of Regulatory Requirements camouflaging all vital and very sensitive data to loot the bank and cheat the depositors and investors. Even, the very fact the Technology in use in the bank has been intelligently manipulated shows how and to what extent the Directors can indulge in the misuse of banks' funds and influence / fool the Regulator and other authorities. It is a new lesson for depositors to be vigilant and for insistence on the need to have depositors' representative on the Banks' Boards. There should be some flow of MIS to some of the Key depositors and their voices need to be heard by the Regulator and other authorities.
Amarjit Singh
4 years ago
RBI, Ed, mumbai police, good job for a/c hold ers
Mohan Krishnan
4 years ago
Why RBI Officials didn't read MONEYLIFE.? All these issues were known. Wadhwan Family's nefarious activities have been known to low IQ readers like us. The only reason RBI did not show any interest was blinding by compromise. Now they are treating DHFL too "softly". Also fooling Judiciary by submitting half truthful and half distorted Affidavit. RBI is i important institution for Crony Capitalism in India ( like FED for Wall street). Abolish RBI.
Shaol M
4 years ago
Now RBI suddently wake up from sleep and sarch original records of bank
Nakul Kumar Reddy
4 years ago
They r cheater's ,file case on them.
Free Helpline
Legal Credit