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PMC Bank crisis: Suspended MD Joy Thomas details the anatomy of a fraud

Updated : October 03, 2019 07:13 AM IST

Joy Thomas, the now-suspended managing director of the crisis-hit bank, on Monday admitted to the RBI that the bank's actual exposure to the bankrupt HDIL stands in excess of Rs 6,500 crore, which comes to a whopping 73 percent of the bank's total loan book, a flagrant violation of norms.

Thomas, in a five-page letter to the central bank on Monday, laid bare the details of how the fraud was perpetuated and the cooperative bank's modus operandi in concealing its wrongdoing for so long.

PMC Bank still remains hopeful of recovering its loans to HDIL.

Mumbai-based Punjab & Maharashtra Cooperative Bank (PMC) received a notice by the Reserve Bank of India (RBI) on September 24, stating that the bank has been put under regulatory restrictions for a period of six months.

It has all gone downhill for the cooperative bank since.

The bank's current chairman Waryam Singh was director on the board of HDIL until 2015, and was earlier director on the board of Dewan Housing Finance Corporation (DHFL) — HDIL and DHFL are promoted by brothers, Saran and Kapil Wadhawan.

Thomas, in a five-page letter to the central bank on Monday, laid bare the details of how the fraud was perpetuated and the cooperative bank's modus operandi in concealing its wrongdoing for so long.

Here's a lowdown:

In 1986, Late Rajesh and Rakesh Wadhawan (present director of HDIL) saved the bank in 1986 by infusing capital and brought bank's network to positive.
The Wadhawans kept huge deposits in the bank to aid its revival before starting their loan relation with the firm in the 1990s.
In August 2004, Rajesh Wadhawan deposited more than Rs 100 crore to tide over liquidity crunch faced by the bank.
More than 60 percent of the bank's transactions were with HDIL.
HDIL's accounts used to get overdrawn and get cleared soon after. PMC Bank charged 18-24 percent interest from these accounts and made huge profits.
In 2006-07, the bank's exposure to Wadhawan group stood at around Rs 500 crore.
When HDIL went public in 2007, its capital requirement soared and it started banking with other firms as well, impacting PMC Bank's profits. The cooperative bank requested HDIL to continue banking with it, an entreaty HDIL accepted and went on to expand their relation with the bank beyond Mumbai.
In 2013, HDIL's major projects of slum rehabilitation around Mumbai airport was cancelled which led to the firm defaulting on its dues with the bank.
As loans outstanding were huge, the bank would have faced regulatory action from the RBI, so it reported all accounts as standard accounts.
Information was concealed from the board due to fear of loss of reputation.
The RBI, before 2015, checked only top few borrowers, as a result the defaulting accounts did not come in the picture.
The stressed legacy accounts of HDIL were replaced with dummy accounts to match outstanding balance in 2017.
In 2017, against a deposit of Rs 2,824 crore and advances of Rs 2,000 crore, PMC Bank's exposure to HDIL stood at Rs 1,026 crore and classifying the loan to the firm as a non-performing asset (NPA) would have further hit the bank's bottomline.
PMC Bank still remains hopeful of recovering its loans to HDIL but a lack of progress in that direction forced the bank's management to appraise the RBI of its dire situation on September 18.

PMC Bank crisis: Suspended MD Joy Thomas details the anatomy of a fraud

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