Irregularities at PMC Bank Pertain to its Connection with HDIL

New Delhi: After the Reserve Bank of India (RBI) on September 24 imposed restrictions on the operations of the Punjab and Maharashtra Cooperative (PMC) Bank, its murky affairs are emerging. What is worrying thousands of its depositors across seven states is the bank’s connection with the bankrupt Housing Development and Infrastructure Limited (HDIL).

Although the RBI in its first directive had restricted the withdrawal limit to only up to Rs 1,000 for six months, the banking regulator on Thursday granted a relaxation to depositors by increasing the withdrawal cap to Rs 10,000.

“The directions were necessitated on account of major financial irregularities, failure of internal control and systems of the bank and wrong/under-reporting of its exposures under various off-site surveillance reports to the RBI,” stated the regulator. The restrictions were imposed under Section 35A of the Banking Regulation Act.

Such action on cooperative banks is a regular practice by RBI but this time it has come as a shocker, considering the massive deposits and the vast network of PMC Bank, which has 137 branches in seven states. Similar directives were imposed on the Indian Mercantile Co-operative Bank Limited, Lucknow, in June 2014 and Kopal Co-operative Bank Limited, Mumbai, in March 2017. In both these cases, the directives continue, as the apex bank has been extending the restrictions every six months.

According to PMC bank’s annual report 2018-19, as on March 31, 2019, the bank had total deposits of Rs 11,617.34 crore and advances of Rs 8,383.33 crore. In 2018-19, the cooperative bank posted a total revenue of Rs 1,297.98 crore. The revenue was recorded as Rs 1,170.49 crore in 2017-18.

According to news reports, the RBI action was prompted by PMC Bank’s loan of about Rs 96.5 crore granted to HDIL held by the Wadhawans in August. HDIL used this amount to clear its dues to Bank of India, which had approached the National Company Law Tribunal (NCLT) that had threatened to begin insolvency proceedings against HDIL. Surprisingly, this loan was granted in spite of HDIL’s outstandings of about Rs 2,500 crore to PMC. Mumbai Mirror reported that this substantial amount was not even listed under non-performing asset (NPA) or bad loan category in PMC Bank’s books.

As per the bank’s annual report, during 2018-19, PMC bank’s non-performing assets (NPA) jumped two-fold to 2.19% from 1.05% in the past year. And the bank classified an amount of Rs 2,681 lakh worth of advances or loans as doubtful of recovery.

Reportedly, PMC Bank’s chairman S Waryam Singh held 1.91% stake in HDIL, which was worth around Rs 1,000 crore till September 2017. Singh was a non-executive director at HDIL for 10 years between 2005 and 2015. He then quit the real estate company and returned to PMC Bank as chairman, a position he held between 1999 and 2005. Also, Singh had stakes in other entities controlled by the Wadhawans.

Till the RBI figured out suspicious transactions at PMC Bank, it was one of the top 10 leading cooperative banks in the country. In the past few months, the bank was also in talks to take over reigns of another collapsed cooperative bank -- Mapusa Urban Co-operative Bank of Goa Ltd (MUCB).

The reputation of the bank was such that RBI’s two employees’ cooperative credit societies in Mumbai, which have over 11,000 members, have deposits aggregating Rs 191.50 crore in the bank.

The Reserve Bank Officers’ Co-operative Credit Society Ltd, has a fixed deposit of Rs 105 crore and the Reserve Bank Staff and Officers Co-operative Credit Society Ltd, has a Rs 86.50-crore fixed deposit with PMC Bank.

As the Maharashtra state elections are slated in October, the crisis at PMC Bank has also become an election issue with depositors protesting across the bank’s branches in the state. As per a report in The Tribune, Chief Minister Devendra Fadnavis was allegedly close to some officials of PMC Bank and was considering fielding one bank director, Rajneet Singh, as a Bharatiya Janata Party candidate.

Meanwhile, JB Bhoria, the RBI-appointed administrator of the bank, has assured depositors that there was no need to panic as the bank was insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC), through which deposits of up to Rs 1 lakh were covered.