PMC Bank Fraud: RBI Says the Bank Submitted Fraudulently Manipulated Data on HDIL Loans
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."
 
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.  
 
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    COMMENTS

    P S Krishnan

    10 months 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

    10 months 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

    10 months ago

    RBI, Ed, mumbai police, good job for a/c hold ers

    Mohan Krishnan

    10 months 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

    10 months ago

    Now RBI suddently wake up from sleep and sarch original records of bank

    Nakul Kumar Reddy

    10 months ago

    They r cheater's ,file case on them.

    PMC Bank Fraud: Progressively Relaxing Withdrawal Limits, RBI Tells Bombay HC
    The Reserve Bank of India (RBI) on Tuesday informed the Bombay High Court that it has been progressively relaxing withdrawal limits for depositors of Punjab and Maharashtra Cooperative Bank (PMC Bank), and those having medical emergencies, marriages and other hardships, can approach the administrator and withdraw up to Rs1 lakh from their accounts. 
     
    The Court was hearing a bunch of petitions filed by PMC Bank depositors. While asking RBI to file an affidavit enlisting necessary steps to prevent further damage to the depositors, the Court says it cannot interfere on requests for releasing more funds or change withdrawal cap on deposits imposed by RBI.
     
    The central bank informed the Court that PMC Bank had indulged in camouflaging accounts through software to keep certain accounts off the records. "PMC Bank's auditor did not draw attention to this camouflaging," RBI had said. 
     
    In its submission, RBI informed the Court that it had appointed one of its retired officer JB Bhoria, as administrator of the fraud-hit PMC Bank. RBI filed a detailed affidavit and also shared copies of its affidavit with petitioners about the steps taken to protect the interest of PMC Bank depositors. 
     
    The counsel for RBI informed the Court that it initiated probe in PMC Bank after receiving a complaint from an insider. "Top officials of the PMC Bank were aware of the wrongdoing. We will increase withdrawal limits as entire picture emerges out of an ongoing investigation," one of the tweets from Omkar Gokhale says. 
     
     
    Meanwhile, unhappy over the steps taken by RBI and the government, several depositors of PMC Bank protested outside the Bombay HC. 
     
    The next hearing in this case is scheduled for 4 December 2019.
     
    Separately, RBI has said that its statutory inspection for PMC Bank's position, as on 31 March 2019, reveals that the lender has disclosed only Rs439.58 crore as its exposure to Housing Development and Infrastructure Ltd (HDIL) group of companies and remaining Rs5786.43 crore remained undisclosed. 
     
    Replying to a question in the Lok Sabha, Anurag Thakur, minister of state for finance, says, "The exposure to HDIL group was camouflaged or misreported to RBI and have since been classified as non-performing assets (NPAs) by the RBI, requiring huge provisioning to be made as per RBI instructions. This resulted in a steep deterioration in the financials of the (PMC) Bank."
     
    As on 23 September 2019, when RBI imposed directions, total number of depositors of PMC Bank was 9,15,775. 
     
    The minister says, "RBI has further stated that as this was a case of failure of management at the Board level, it was considered necessary to supersede the board of directors of the bank. Accordingly, RBI, in exercise of the powers conferred under sub-section (1) and (2) of Section 36AAA read with Section 56 of the Banking Regulation Act, 1949, superseded the board of directors of the bank on 23 September 2019 and appointed an administrator in its place for six months. An advisory committee comprising of three experienced professionals has also been appointed to assist the administrator in discharge of his duties in terms of Section 36AAA(5)(a) read with Section 56 of the Banking Regulation Act." 
     
    "Withdrawals by depositors have been restricted to the notified amount. The limit for withdrawals is presently at Rs50,000 from 5 November 2019 which enables about 78% of the depositors of the (PMC) bank to withdraw their entire account balance. Further, the depositors can also withdraw on hardship grounds, including medical expenses and non-medical expenses like educational expenses of self or children, marriage expenses of self, other relatives and for livelihood, an amount up to Rs1 lakh, with a sub-ceiling of Rs50,000 for withdrawal on all non-medical grounds," Mr Thakur says in a written reply to question asked by Bhartruhari Mahtab and Rahul Ramesh Shewale, both members of Parliament (MPs).
     
    According to the minister, over the past three years, there were 307 fraud cases valued at Rs183.90 crore in urban cooperative banks (UCBs). During 2018-19, number of fraud cases and amount involved had jumped significantly over those in the previous year, the reply shows.
     
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    COMMENTS

    Nakul Kumar Reddy

    10 months ago

    After talking all money from them ,I will give u some leads regarding frauds doing in the bank .
    It is the scandal have u not hear to till date.

    Scrap Deposit Insurance for PSBs, Commercial Banks: AIBEA
    Even as the finance minister has announced plans to increase deposit insurance and bring in a Bill to re-introduce the ‘bail-in’ clause, the All India Bank Employees' Association (AIBEA) has demanded scrapping of such insurance cover for public sector bank (PSB) deposits.
     
    CH Venkatachalam, general secretary of AIBEA, in a letter to finance minister Nirmala Sitharaman, says, "Year after year, public sector banks (PSBs) and all commercial banks are required to pay huge premium to Deposit Insurance and Credit Guarantee Corp (DICGC) but the claim ratio is nil because there is no possibility of these bank being liquidated and making any claims for the insured amount. Also in view of section of 45 of Banking Regulations Act, PSBs and commercial banks should be exempted from the purview of deposit insurance scheme."
     
    According to AIBEA, after an amendment in 1960 in the Banking Regulations Act, not a single commercial bank has been liquidated or closed. PSBs also enjoy the sovereign guarantee of the government and there is no question or possibility or eventuality of any commercial bank getting closed down or liquidated, Mr Venkatachalam added.  
     
    As on 31 March 2019, the deposit insurance fund at DICGC (Deposit Insurance and Credit Guarantee Corporation) is Rs97,350 crore, including a surplus of Rs87,890 crore. The claims settled by DICGC so far since 1962 is only Rs5,120 crore and that too for the cooperative banks.
     
     
    "Out of 2,098 banks covered by the DICGC, 1,941 banks are cooperative banks. Only these banks are facing problems of closure and liquidation and the deposits of these banks need to be covered by DICGC. Even in the case of these banks, only to extent of deposits covered by the insurance cover, premium should be charged and not on the total assessable deposits which is much higher," Mr Venkatachalam says.
     
    As per data provided by AIBEA, in FY18-19, commercial banks, including PSBs, paid a deposit insurance of Rs11,190 crore while cooperative banks paid Rs850 crore, taking the total premium paid to DICGC at Rs12,040 crore. During the same year, DICGC received claims worth Rs37 crore from cooperative banks. However, none of the claims was settled. 
     
    The bank employee union also highlights the gap between premium paid and insurance coverage. It says, "While the entire amount of deposit is taken as assessable deposit and premium is collected on the total deposits, the scheme covers insurance only up to Rs1 lakh. Thus Banks are paying premium even for the deposits which are not insured. For example, premium paid for FY2018-19 was on deposits worth Rs120 lakh crore but deposits covered by insurance were only for Rs33.70 lakh crore or just 28% of the total deposits."
     
    AIBEA says, there are about 271 crore bank accounts, which are covered by insurance, out of which only 200 crore or 92% accounts are fully protected by DICGC. These 2 billion fully protected accounts are worth Rs120 lakh crore, but only 28% deposits that are worth Rs33.70 crore are covered under the deposit insurance scheme.
     
    Across the country, all cooperative banks have deposits worth Rs8.49 lakh crore, out of which only deposits worth Rs3.77 lakh crore or 44% of the total deposits are covered under the DICGC scheme. At the same time, 19 PSBs have total deposits worth Rs72 lakh crore, out of which just 30% of Rs22 lakh crore, are covered under the deposit insurance scheme, AIBEA added.
     
    After the collapse of Palai Central Bank Ltd and Laxmi Bank Ltd, in 1960, the government introduced the Deposit Insurance Corporation Bill, 1961. The Bill was approved by the Parliament in December 1961. Accordingly, the Deposit Insurance Corporation Act came into being with effect from 1 January 1962.
     
    Earlier, only commercial banks were covered by the Act. Later, cooperative banks, regional rural banks, primary agricultural societies were also brought under the coverage of deposit insurance.
     
    To begin with, the insurance cover against bank deposits were up to Rs1,500. In 1968, it was enhanced to Rs5,000, in 1970 to Rs10,000, in 1976 to Rs20,000, in 1980 to Rs30,000 and in 1993, the cover was enhanced to Rs1 lakh, which continues till today.
     
    Similarly, in the beginning, premium payable for the deposit insurance was at 0.05 paise per Rs100 per year. In 1971, it was revised to 0.04 paise. Later in 1963, it was increased to 0.05 paise, 0.08 paise in 2004 and to 0.10 paise in 2005.
     
     
    "We submit to the government that the deposits of public sector banks and commercial banks which are covered by Section 45 of the Banking Regulations Act be exempted from the coverage of DICGC cover. In addition for cooperative banks, the premium should be charged only on the deposit amount insured and not on the total assessable deposits of the Bank," Mr Venkatachalam from AIBEA added.
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    COMMENTS

    ksrao

    10 months ago

    PSBs are owned by the government. If they fail, government should come to their rescue. Seeking another agency's help for deposit insurance shows that the govt has not realized its responsibility. Deposit insurance for PSBs is a gimmick and should be given up. -Dr KS Rao, former Chief General Manager, SBI.

    M D Khattar

    10 months ago

    The main (in fact the only ) culprit is the coperative banks. Moreover the constitute a very large part of the total number of banks . Also failures of banks is confined to such banks only . The compensation paid by the deposit agency is only to such banks
    So , question is why have these type of banks . we should critically examine their working and see that they work professionally ( why politicians) . In fact these are the banks which need insurance and therefore pay the premium

    Rahul T DeSai

    10 months ago

    The entire amount deposited must be covered preferably for Senior Citizen (the principal amount.) as there are no Govt. SECURITY scheme for them.

    Parimal Shah

    10 months ago

    Makes sense.

    RABINDRA SATPATHY

    10 months ago

    200% justified demad. Insurence for Commercial bank deposit is not at all required.

    chandrashekar

    10 months ago

    The insurance premia by Commercial Banks is the life line of DICGC.

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