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 Therefore, the board of the (PMC) bank has also been superseded under sub sections (1) and (2) of Section 36 AAA read with Section 56 of the Banking Regulation Act and an Administrator has been appointed.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.
You may also want to read...
(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.