It was all smooth sailing at the Punjab Maharashtra Cooperative (PMC) Bank till recently before the NPA concealment fraud came into light. The crisis-ridden bank's annual report for 2018-19 nowhere mentions exposure to any real estate firm and it only talks of MSME lending and NPAs at 3.76 per cent.
Two directors of real estate firm HDIL that set off the massive crisis at the PMC Bank by defaulting on loans worth nearly Rs 6,500 crore have been arrested. Rakesh Wadhawan and Sarang Wadhawan of the Housing Development and Infrastructure Ltd (HDIL) were arrested by the Economic Offences Wing of the Mumbai Police on Thursday.
According to the complaint, HDIL and its group companies were the beneficiaries of 44 loans or 73 per cent of PMC's total loan book size of Rs 8,880 crore - a mammoth violation of regulations which forbid banks from handing out such a large proportion of cash to one sector, let alone a single firm.
PMC Bank's 2018-19 annual report states its gross NPA at 3.76 percent and net NPA at 2.19 percent. Its auditors showed doubtful assets as on March 31, 2019 of Rs 26.66 crore only.
"The low liquidity in the economy has put tremendous pressure on the cash flow of borrowers resulting in default in servicing the debt; consequently stressed assets of your Bank have also increased to some extent," the annual report said.
It also said as per the RBI's instructions, it has focussed on MSME lendings on a priority basis. Nowhere are its advances to any real estate company in the annual report or auditors' clearance. The PMC annual report is a complete holy book with no indications of the frauds or flag-offs by the auditors. Its statutory auditors were Lakdawala & Co. and solicitors Purnanand & Co.
"In the year under review, the banking industry has witnessed increase in stressed assets at alarming rate, which affects its financial position. The management of stressed assets is a major challenge before the entire banking industry in recent times. The low liquidity in the economy has put tremendous pressure on the cash flow of borrowers resulting in default in servicing the debt, consequently stressed assets of your Bank have also increased to some extent. Concerted efforts were taken by the Bank's Monitoring Cell to curtail the NPA at all levels," the annual report had said.
"For speedy recovery, the several recovery tools are used by the Bank's recovery team. This effort has yielded desirable result. The Bank has made requisite provision as per the guidelines of Reserve Bank of India, pursuant to which, the Bank's percentage of Gross NPA to Gross Advances is 3.76 per cent while Net NPA to Net Advances is 2.19 per cent for the year ending March 31,2019."
The report goes on to state that banks shifted focus to the MSME sector in FY19.
"...Bank's total Advances for the financial year 2018 -19 is Rs 8,383.33 crore, indicating a net increase of 12.86 per cent i.e Rs 955.25 crore on previous financial year 2017-18. Your Bank has shifted its focus to priority sector advances -- MSME advances to be in line with the regulatory requirements of Reserve Bank of India," the report said.
Meanwhile, the eight Sikhs on the PMC Bank board have been banned by the community, and stripped of memberships of gurdwaras and institutes in Mumbai.
Chairman Waryam Singh, Vice Chairman Balbir Singh Kochhar, Directors Surjit Singh Narang, Daljit Singh Bal, Surjit Singh Arora, Rajneet Singh, Gurnam Singh Hothi and Jasvinder Singh Banwait, as well as their families, have been stripped of their membership in gurdwaras and community-run trusts that that operate 28 schools, four colleges and a hospital in Mumbai and Navi Mumbai. The eight have also been barred from attending community gatherings, like the upcoming 550th birth anniversary celebrations of Guru Nanak.