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As PMC bank depositors wait a long fight to get their money bank, the scam raises several questions on bank regulation

According to media reports, the loans to HDIL were not reflecting in the books of accounts at all. It was diverted to the group through thousands of dummy accounts that were created for this purpose

As the depositors of Punjab and Maharashtra Cooperative Bank (PMC) wonder whether their deposits in the bank are safe, several questions have emerged on how the crisis was brewing in the bank without being detected. And as more and more information about the malpractices happening at the bank emerge, they pose questions instead of answering any.

A recent news report from PTI show that PMC Bank has an exposure of ₹6500 crore, and not ₹2500 crore as previously reported, towards one single entity, the Housing Development and Infrastructure Limited (HDIL) including its group companies. It is 4 times more than what is allowed as per regulations. RBI rules allow banks to lend maximum of 15% of its their total loan portfolio to a single entity, while the limit is extended upto 20% for group companies. Somehow, the bank had kept this information hidden from everyone. According to media reports, a whistle-blower board member leaked the information to RBI which prompted the now ex PMC Bank MD Thomas to approach the RBI and report the lapse.

HDIL, a slum redevelopment focused company, is in the bankruptcy court after being hit by a severe cash crunch following the failure of some of its key projects.

While RBI has maintained a tight position on the bank, at this point it is yet to confirm the exact irregularities it has detected in the bank. The regulator has suspended the board of the bank and has appointed an administrator.  But it has not come forward and admitted that PMC Bank indeed has this exposure to a single entity. If RBI does so, it is going to send the account holders into a tizzy.

PMC bank assures customers

The latest audit report of the bank states that “During the course of our audit, we have not come across material and significant transactions which appear to be contrary to the guidelines issued by the Reserve Bank of India and National Agriculture and Rural Development Bank”.

If the reports that the bank has 73% exposure to one single entity is true, I cannot wrap my head around what exactly do the auditors look for when they audit the bank. How is it even possible to miss this kind of mismanagement is beyond me. Isn’t this as simple as seeing how much loan is given to each entity and adding it up?

According to media reports, the loans to HDIL were not reflecting in the books of accounts at all. It was diverted to the group through thousands of dummy accounts that were created for this purpose. Moreover, reports say that some loans were not reflecting in the accounts of the bank as those were not computerised to hide the faulty credit lines. It is a big question how a bank can conduct such a massive scam to benefit a single entity without getting detected. How the auditors didn’t detect that the bank was lending money to non-existent entities needs to be probed thoroughly.

Most media reports so far are concentrating on how much money can be withdrawn from each account, the RBI has now allowed the depositors to withdraw ₹10,000 from their accounts in the bank, up from original limit of ₹1,000. But this is of little consequence as 80% (9300 cr) of the deposits in PMC Bank are in Fixed Deposits (FD) as per their annual report for 2018-19. Therefore, it is not going to help those people who have FDs which usually runs to lakhs of Rupees.

One interesting tidbit here is that two of RBI’s employee co-op societies also have FDs in PMC Bank. Reserve Bank Officers’ Co-operative Credit Society Ltd has a deposit of ₹105 crore, while Reserve Bank Staff & Officers Co-operative Credit Society Ltd has a FD of ₹86.50 crore with the bank. It would be very interesting to know if that money is still there in PMC Bank or the RBI co-op societies were able to take out their FDs before restrictions were imposed.

PMC Bank account holders have formed groups on WhatsApp, Facebook and Telegram to coordinate the protests and to make our voices heard. We are running hashtag campaigns (#PMCBankCrisis #PMCBank) on Twitter and Facebook for the last couple of days. Getting people on board to join these groups hasn’t been easy for us. Unfortunately, many account holders feel embarrassed to admit that they have lost money among their peer groups. They are on some kind of guilt trip that it was their mistake that they are in this situation. So, they are not coming forward to participate in social media campaign or on the streets as much as we would have liked to. Currently, we have about 850 people in a single group on Telegram with account holders from Mumbai, Pune, Bangalore and Delhi. We have not been able to leverage WhatsApp because of the limit on number of members in a single group on WhatsApp platform. So, it has been a challenge to get people to install Telegram and join the group as well.

PMC bank protest

Given that it is election season in Maharashtra where most of the account holders reside, none of the “leaders” of any political party has made any comment on this issue except for Kirit Somaiya, VP of BJP Maharashtra. And unfortunately, he is saying all the wrong things from FD holders POV to score political brownie points. Raising how much money can be withdrawn is not going to help as 80% of the money is in FDs and nothing can be taken out of them.

The administrator appointed by RBI said that it will take about 2 weeks to check and file a report on what is happening. We fear that we are going to run out of steam by then as most of us have to get back to our jobs. Along with the current small set of people we have been able to gather, we are banking on media support for the next few days to keep up the pressure on RBI and the government by asking the right questions and hoping to fix responsibility.

I understand that this is going to be a long fight for all account holders to get back the money, even partially.


Author: Karthik Ramachandra

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