Group - 4

Crisis at the Punjab Maharashtra Bank.

Group Members-
Anjulata Jaiswal - 09
Aakash Singh- 61
Aashish Jha - 62
Divyashree Chaudhari - 79
Khushi Verma - 118
About PMC Bank -

Founded in 1984, PMC Bank has 137 branches across seven states, 81 of these in
Mumbai, Navi Mumbai, Thane and Palghar regions, 10 in Pune and 12 in the rest of
Maharashtra. Its customers include small businesses, housing societies and institutions.

Headquarters: Mumbai, India

It also has branches in Karnataka, Goa, Delhi, Madhya Pradesh and Gujarat. It is one of
the profitable co-operative banks in India and had earned a total revenue of ₹1,297 crore
(US$162 million) and profits of ₹99.69 crore (US$12 million) in the financial year 2019.

The former PMC bank is now called the Unity Bank. PMC bank stands for Punjab and
Maharashtra Cooperative bank. It is one of the oldest cooperative banks in India. The
Bank offers a range of banking and financial services and products to suit the needs of its
customers. Daljit Singh Bal, Former director of the PMC bank, was apprehended for the
fraud case. The Mumbai police EOW has imposed a multi-crore scam case against Daljit
Singh Bal and ten former bank directors. This fraud case was first highlighted in
September 2019.

Background-

On 23rd September, the Reserve Bank of India (RBI) imposed strict restrictions on the
Mumbai-based, Punjab, and Maharashtra Cooperative Bank (PMC).

As per the latest RBI circular, PMC Bank has been barred from carrying out a majority of
its routine business transactions for 6 months.

The restrictions extend to both lending and withdrawals, meaning a customer can
withdraw only ₹ 1,000 once over the entire 6 months period from a savings or current
account or any other deposit account.
The investor public starts to panic and reach out to the nearest branches. RBI then
increased the limit of withdrawal to 10,000 and 25,000. Joy Thomas, Former managing
director of PMC bank, cheated the bank boards, the auditors, the government, and the
Reserve Bank of India for many years by concealing the faulty loan records of ₹6,500
crores. These ₹6,500 crores were taken by Housing development and infrastructure
limited (HDIL), a real estate firm

Thomas admitted everything and tried to explain the circumstances under which he took
such decisions in the letter he wrote to the Reserve bank of India. He still believes that
the Housing development and infrastructure limited firm will repay the amount, and
things will get on track. He presented the whole roadmap to recover the parts of the loan.

On 23 September 2019, the RBI imposed operational restrictions on PMC Bank for six
months. Due to this, the bank account holders are not allowed to withdraw more than
₹1,000 from their accounts during this period of restrictions. On 26 September 2019, the
restrictions were eased and a total of ₹10,000 could be withdrawn by customers. On 5
November, 2019 decided to increase the prescribed withdrawal limit to ₹ 50,000.

The Reserve Bank of India (RBI) on 19 June 2020 doubled the withdrawal limit for
Punjab and Maharashtra Cooperative Bank's depositors to Rs 100,000 from Rs 50,000
earlier.

Joy Thomas, the MD of the bank, was suspended. He admitted the exposure of the bank
to the troubled realty company HDIL and also stated that the company had been violating
the RBI rules for 5–6 years now. Of the overall loan book of ₹8,300 crores, PMC bank
loans to HDIL stood at ₹6,226 crore, about 73% of total loans of the bank

In Feb 2022, the former director, Bal, was taken under custody.

This fraud case came to light after the Reserve bank of India noticed that PMC bank
created fictitious accounts to hide over 4,300 crore loans to the firm, which was on the
verge of bankruptcy at that time. According to the RBI, the PMC bank covered 44 fake
and problematic loans, and HDIL was included in these accounts
Major Causes of Crisis -

According to an FIR filed in the case, HDIL promoters allegedly colluded with the bank
management to draw loans from the bank's Bhandup branch. The bank officials did not
classify these loans as non-performing advances, despite non-payment.

Reports estimate the bank’s overall exposure to the HDIL group at around Rs 6,500
crore, or over 73 per cent of all of the bank’s advances — and all of this is not being
serviced.

The bank also allegedly created fictitious accounts of companies which borrowed small
sums of money, and created fake reports to hide from regulatory supervision.

In 2018-19, the bank had reported a net profit of Rs 99.69 crore in its annual report. The
bank showed 3.76 per cent (or Rs 315 crore) of advances (Rs 8,383 crore) as gross non-
performing assets (NPAs), which was good performance as compared to public-sector
banks.

The RBI had put restrictions citing several reasons like regulatory lapses and massive
under-reporting of non performing assets (NPAs).

This sudden restriction ahead of the festival season had upset the calculations of
customers and dealt a big blow to a state that is heavily reliant on the cooperative bank
structure to service millions of customers in its villages.

Financial experts believed there were also mismatches between the data uploaded on the
RBI server and the manual entry data maintained by the bank.

As per many reports, the biggest reason for RBI’s punitive action was a loan of ₹ 2,500
crores to the now-bankrupt real estate firm Housing Development and Infrastructure
Limited (HDIL).
The PMC bank did not classify the loan to HDIL as NPA despite the firm’s default on
repayments and eventually, RBI took stock of the situation and termed the loan as a
complete loss.

According to the RBI guidelines, such cases ask that the bank must make a provision for
the loss. But the PMC Bank’s cash reserves stand at around ₹ 1,000 crores, well short of
the ₹ 2,500 crore loan granted to HDIL, which led to this harsh decision.

If RBI felt that the loan was not a complete loss, the PMC Bank would have had to make
provisions for 10% of the total loan, which it had the resources for.

Role of stakeholders in the Crisis -

Joy Thomas, Former managing director of PMC bank, cheated the bank boards, the
auditors, the government, and the Reserve Bank of India for many years by concealing
the faulty loan records of ₹6,500 crores. These ₹6,500 crores were taken by Housing
development and infrastructure limited (HDIL), a real estate firm.

Thomas admitted everything and tried to explain the circumstances under which he took
such decisions in the letter he wrote to the Reserve bank of India. He still believes that
the Housing development and infrastructure limited firm will repay the amount, and
things will get on track. He presented the whole roadmap to recover the parts of the loan.

In his confrontation, Thomas also said that he took this decision because HDIL and the
bank have been doing business together since 1990 and share good relations. He added
that he concealed the information to safeguard its reputation and the bank itself. The large
account data was not transferred to RBI because of the risk to their name’s reputation.

In Feb 2022, the former director, Bal, was taken under custody.

A total of 12 people were taken into custody in the money laundering and fraud case.

• Daljit Singh Bal – Former director of PMC bank

• Sarang Wadhawan – Son of Rakesh Wadhawan, arrested for loan fraud.

• Jagdish Mookhey – Former director of Reserve bank of India

• Mukti Bavisi – Former director of Reserve bank of India.

• Trupti Bane – Former director of Reserve bank of India.

• Mehul Thakur – Managing director of Viva group

• Madangopal Chaturvedi – consultant of Viva group.

• Professor PD Sarabhai

• Dr R.C. Thakur

The main accused fraudster, Daljit Singh, was arrested in Bihar. He was arrested 200
metres from the Nepal border while planning to flee for Canada via Nepal. Daljit Singh
cleared the loans of HDIL, leading to the crisis in the bank.

Rakesh Wadhawan, the founder of the HDIL company, pleaded for bail because of
medical conditions. The supreme court sanctioned his bail and allowed him for the
needed surgery.

The Economic Offences wing seized property owned by the HDIL firm. The property
costs about ₹3,5000 crores itself.

During such a crisis, PMC bank has faced many financial issues such as a loss of
customer trust, and there is a whole chain effect among all its other banking partners
because of this issue. There have been many disputes between HDIL and PMC Bank.
HDIL has also filed cases against PMC bank and has taken them to court.
Regulatory Response to Crisis;

The RBI has now increased its supervisory powers over co-operative banks, but
depositors say all this is too little too late

In 2016, India passed a law that puts more pressure on banks to identify and report
troubled loans. But the banking crisis continues. This year alone, the RBI put 44 co-
operative banks under lending or withdrawal restrictions for financial irregularities.

The RBI has said that PMC bank's recovery will take a long time, and that it was in such
a bad state that no investor is ready to help.

Some experts agree - they say co-operative banks are risky at this time because they lend
to borrowers who are more likely to default during a pandemic.

Business journalist Sucheta Dalal says there's another reason.

"PMC depositors are not knocking on the right doors. The RBI can solve this issue by
finding a buyer, but there is a lack of political will."

Difficulties in regulation of co-operative banks

The Punjab and Maharashtra Co-operative Bank (PMC Bank) faced difficulties in regulation due
to several reasons. One of the main reasons was the bank's exposure to a single borrower,
Housing Development and Infrastructure Limited (HDIL), which accounted for a significant
portion of the bank's loan portfolio. This led to a large number of non-performing assets (NPAs)
and a liquidity crisis. The Reserve Bank of India (RBI) imposed restrictions on the bank's
operations, including a cap on withdrawals by depositors, to prevent a run on the bank. The
bank's management was also accused of fraudulent activities, including hiding NPAs and
violating lending norms. The case is currently being investigated by various agencies, including
the Economic Offences Wing (EOW) of the Mumbai Police and the Enforcement Directorate
(ED). The case highlights the challenges faced by regulators in monitoring and supervising co-
operative banks, which are subject to dual regulation by the RBI and state governments. Co-
operative banks are often smaller and more vulnerable to financial shocks than commercial
banks, making them more susceptible to fraud and mismanagement. The RBI has since taken
steps to strengthen the regulation of co-operative banks, including increasing the minimum
capital requirements and improving the supervision and monitoring of these banks

Consequences of Crisis-

This fraud case shocked the whole nation. Some directors were very well-known people
in the banking sector and the government sector itself. This fraud case brought a lot of
troubles to the nation and the whole banking sector. The PMC Bank has been in the trust
of the RBI, and they are trying to recover the money with their means to avoid any
further impact on customers, investors, and shareholders. There is a hint that several other
big banks have given loans to this firm without proper records.

In the Indian banking system, cooperative bank failures occur with alarming regularity.

As per the latest report from RBI, their number fell from 1926 in March 2004 to 1551 in
March 2018. During this period, the RBI forced through 129 merges of cooperative banks
too.

At the end of March 2017, cooperative banks accounted for only 11% of the total assets
of scheduled commercial banks (SCBs).

What’s shocking in this restriction is that PMC Bank was supposedly one of the better-
run cooperative lenders in the country. It had close to ₹ 11,600 crores in deposits and ₹
8,400 crores in advances, making it one of the largest cooperative banks.

The main reason, cooperative banks fail so often in India, is their small capital base – for
example, urban cooperative banks can start with a capital base of ₹ 25 lakhs compared to
₹ 100 crores for small finance banks.

Another reason is that such banks are hijacked by vested political interests. This could
mean appointing political lackeys as senior bank officials, embezzlements, fraudulent
loans given which are later written off, forcing government employees to hold salary
accounts with cooperative banks, and so on.

Indian central bank’s supervision of cooperative banks is not as stringent as that of

But while that is the case with the majority of cooperative banks in India, RBI did have
the powers to do so in the case of PMC which is a multi-state bank.

What lies ahead, is a big task for RBI and the central government to come together and
create strong structural reforms on how Indian cooperative banks operate.

A Case study On how Crisis Of Punjab Maharashtra bank Affected

It was late September when Andrew Lobo, 71, was brought home from a hospital in
Mumbai after undergoing treatment for lung infection. Andrew had no reason to be
relieved, however. He had come home to the devastating news that Punjab and
Maharashtra Cooperative (PMC) Bank , where he had an account, had been placed under
‘directions’ of the Reserve Bank of India (RBI) for six months, after irregularities had
been found in lending. This meant that the RBI was practically taking over the bank’s
operations. Crucially, it meant that customers like Andrew could withdraw only up to
₹1,000 of the total balance in any account they had in the bank.

The infection had already weakened Andrew’s lungs; he needed oxygen machines to
breathe. While his family had managed to pay for his treatment, they had been relying on
four fixed deposits in PMC Bank to buy the oxygen machines needed to pull him
through. Each of the machines cost ₹49,000. With no access to the fixed deposits,
Andrew could not recuperate. On October 31, he became the seventh account holder of
PMC Bank to lose his life.