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PMC Bank crisis: Economic Offences Wing files case against bank management, promoters of HDIL; SIT to probe case

FP Staff

The Mumbai Police on Monday filed a case against the former bank management and promoters of HDIL in the Punjab and Maharashtra Cooperative (PMC) Bank case. A Special Investigation Team (SIT) will be probing the case.

Based on a complaint by the Reserve Bank of India (RBI)-appointed administrator, the city police's Economic Offences Wing filed a First Information Report (FIR) in the case for forgery, cheating and criminal conspiracy against the officials.

The complaint was registered by RBI administrator Jasbir Singh Mattha in which he alleged that in the period starting 2008 till August 2019, the loans given to a particular company were not paid and had turned into NPA (non-performing asset). This information was not disclosed to the RBI as per banking norms, he said, according to a report in India Today.

"As per initial investigations, the bank's losses since 2008 were Rs 4,355.46 crore," police said, according to a PTI report.

The complaint, which names the bank's Chairman Waryam Singh and its Managing Director Joy Thomas, was filed with the Economic Offences Wing (EOW) of Mumbai Police, according to a police official and a statement seen by Reuters. It also names bankrupt realty company Housing Development and Infrastructure Limited (HDIL) and its Chairman Rakesh Kumar Wadhawan, who were beneficiaries of the loans.

Waryam Singh was on the board of HDIL for nine years between 2006 and 2015 and had held 1.91 percent stake in the company during this period. He ceased to be a non-executive director of the company in March 2015. Before he exited the HDIL board, Singh had sold his entire stake in the company.

HDIL has sent a disclosure to exchanges after the confession letter by former PMC Bank MD Joy Thomas, saying the company will take necessary steps and extend full cooperation with all agencies/authorities, according to CNBC-TV18.

HDIL sends a disclosure to exchanges after the confession letter by former PMC Bank MD Joy Thomas, says the co will take necessary steps & extends full cooperation with all agencies/authorities

Modus operandi

Explaining the modus operandi of the case, the FIR said that HDIL promoters allegedly colluded with the bank management to draw loans from the bank's Bhandup branch. "Despite non-payment, the bank officials did not classify the loans as non-performing advances and intentionally hid the information about the same from RBI," an official statement from the police said.

They also created fictitious accounts of companies which borrowed small sums of money, and created fake reports of the bank to hide from the regulatory supervision, it said.

"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," suspended MD Joy Thomas said in his confession letter to the RBI, according to a report in Moneycontrol.

The FIR has been filed under Sections 409 (criminal breach of trust by a public servant or banker), 420 (cheating), and 465, 466 and 471 (related to forgery) of the Indian Penal Code along with 120 (b) (criminal conspiracy).

Whistleblower board member approached RBI

The bank, which has 137 branches and over Rs 11,000 crore in deposits, has been put under restrictions since last week after the RBI discovered certain financial irregularities in the functioning of the multi-state lender.

Non-disclosure of the actual HDIL status (NPA since the past two-three years) and the quantum of the exposure to the group was leaked by one of the PMC board members himself to the Reserve Bank, forcing Thomas to confess the misreporting.

According to a source, Thomas wrote a four-and-a-half page detailed letter to the 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.

The source further said Thomas has also confessed that most of the board members were in the dark about these loans, PTI said.

According to sources, the overall exposure of the bank to the financially stressed HDIL group is around Rs 6,500 crore or over 73 percent of the advances, and all of it is not being serviced. Under the restrictions, which are to be applicable for six months, a depositor is able to withdraw only Rs 10,000 per account. It can also not take fresh deposits or extend any new loans.

The restrictions have led to a massive public outcry with people thronging the branches for their money. The RBI has said that 60 percent of the accounts have balances under Rs 10,000 and will not be impacted by the measures.

A special team has been formed to investigate the case, police added.

RBI takes charge, suspends MD last week

The Reserve Bank of India (RBI) last week took charge of the bank and suspended Thomas and the bank's board after uncovering lending irregularities at the bank, which has been barred from renewing, or granting any loans, or making investments without prior approval of the RBI.

The police complaint against PMC and HDIL officials was filed at the behest of an administrator, whom the RBI appointed last week to oversee the bank's operations. The RBI has placed curbs on withdrawals from PMC, prompting protests among thousands of PMC's depositors, whose funds have been largely frozen.

The complaint alleges that the PMC and HDIL officials purposely misled the RBI for over a decade from 2008 to August 2019 by failing to disclose big accounts that had become non-performing assets by producing forged audit reports.

The now-suspended managing director of the crisis-hit Punjab and Maharashtra Cooperative Bank (PMC), Thomas, has reportedly admitted to the RBI that the bank's actual exposure to the bankrupt HDIL is over Rs 6,500 crore€"four times the regulatory cap or a whopping 73 percent of its entire assets of Rs 8,880 crore, according to a PTI report.

Banking sector crises

The PMC case has sparked renewed concerns about the health of the country's troubled banking sector, which has been rocked by a multi-billion dollar fraud at a state-run lender, the collapse of a major infrastructure lender, bad loan issues at state-run banks and a liquidity squeeze that has hit shadow lenders.

More than two dozen co-operative banks are now under RBI administration, but PMC Bank€"with total deposit base at over Rs 11,500 crore at the end of 31 March€"is among the top five co-operative banks in the country, and by far the largest to be hit by such RBI measures.

India has more than 1,500 small urban co-operative banks that typically service small local communities in certain districts or states. Depositors at co-operative banks are in a relatively higher risk zone, but tens of thousands still bank with these lenders as they typically offer better interest rates on deposits.

--With inputs from agencies

Also See: PMC Bank's actual exposure to HDIL at over Rs 6,500 cr or 73% of total loan book, says suspended MD Thomas in letter to RBI

RBI move caused lot of harm to depositors; could have managed the situation better, says suspended PMC Bank MD

PMC Bank crisis: RBI had recommended removal of chairman Waryam Singh in 2018, says report

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