The Punjab and Maharashtra Co-operative (PMC) Bank has been in the news for the last week for all the wrong reasons. It is now being told that its exposure to bankrupt Housing Development and Infrastructure Limited (HDIL) is over Rs 6,500 crore. This translates to 73 per cent of its total assets worth Rs 8,880 crore.
According to earlier reports, a single loan of Rs. 2,500 crore that the bank extended to HDIL was the main factor attributed to its downfall. As per the RBI norms, single entity exposure limit for banks is 15 per cent of their capital fund, and in the case of group companies, it can be five per cent more. However, in this case, PMC bank's exposure to HDIL was almost four times what is the prescribed limit.
This admission of Rs 6,500 crore exposure has come from none other than Joy Thomas, who was earlier the managing director of PMC bank and has now been suspended. He reportedly admitted this in front of the Reserve Bank of India (RBI) after a board member revealed actual balance sheet details to the regulator.
There are now several reports suggesting that many of the bank's senior employees were involved in this fraud and it could date back to 2008. Joy Thomas in a four-and-a-half page letter to the central bank, have detailed out how he and six key people including board members and chairman Waryam Singh sanctioned this humongous loan to HDIL group.
In early 2017, PMC Bank had lent close to Rs 1000 crore to over half a dozen related entities of HDIL to save the company from going into bankruptcy. As per sources, these entities were in a range of businesses such as land acquisition, construction to budget homes. This loan of Rs 1,000 crore was made available in quick succession between April 2017 and October 2018. During this time, HDIL was under the scanner of state-owned banks for delay and default of loans.
The first bank to raise alarm on HDIL was Mumbai based Union Bank of India after one of its subsidiaries Guruashish Constructions defaulted on payments. It is noteworthy that PMC had doled out a loan of Rs 75 crore to Guruashish Constructions in April that year. This is not all, in a separate incident, PMC also extended Rs 136 crore loan to Sapphire Land Developers, another subsidiary of HDIL. At the time of giving out this loan, not only was Sapphire Land Developers making consistent losses but its accumulated losses were greater than the loan it secured from PMC Bank.
While the Union Finance Minister Nirmala Sitharaman has said that there is playing the waiting game, the account holders are getting restless. She said, “I will not get into this at this stage. Will wait, let there be some kind of comprehensive picture emerging post which certainly the government will have to see what best can be done". This has not been able to console the depositors that have been queuing in front of the bank every day demanding that their hard-earned money bank.
The crisis in PMC bank was first exposed on September 23, when RBI directed it to shut down its operations. In addition, a withdrawal limit of ₹1000 per customer which has been imposed. This was later increased to Rs 10,000 per account holder for a period of six months. However, most people who went to ATMs to withdraw complained that there was no money being dispensed.
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