FSRH IX: THE PMC BANK SCAM - A COMPLETE ANALYSIS

Updated: Mar 29, 2021

Introduction


PMC Bank, in the news lately for fraudulently extending loans to Housing Development & Infrastructure Ltd (HDIL), risking deposits of numerous customers, is one of the latest in a long list of cooperative banks that have been put under restrictions by the RBI. To date 26 cooperative banks have been placed under directions of the central bank, this generally happens when the RBI thinks the bank is guilty of putting depositors at risk due to mismanagement or fraud, meaning operations are restricted and, often, deposits are stuck.

THE PMC BANK SCAM - A COMPLETE ANALYSIS

The fraud at PMC Bank

The fraud at PMC Bank was discovered in September 2019 after the Reserve Bank of India (RBI) found out after receiving tips from an insider that the bank had allegedly created fake accounts to hide over ₹ 4,355 cr in loans granted to an almost-bankrupt HDIL that the company would not be able to repay. According to the RBI, PMC Bank had camouflaged 44 loan accounts which were found to be problematic, including those of HDIL, by interfering with its core banking system making it so that the accounts were accessible only to limited staff members. Offenses had been registered against senior officials in the bank and HDIL promoters by the Mumbai Police’s Economic Offences Wing and the ED.

Several senior officers and management heads at PMC Bank had been aware of HDIL’s accounts and the inconsistencies that lay within since 2017 according to police sources. A plan was made by the accused to conceal the actual position of long-pending dues in loan facilities extended to HDIL to create a safer environment and not let people or other companies find out about the true financial position of PMC within the bank for its other group companies. This scam was found out after a whistle-blower went to the RBI after learning that the RBI was not informed about the loans to HDIL.

THE PMC BANK SCAM - A COMPLETE ANALYSIS

On September 18, 2019, a group of senior bank officials decided to go to the RBI after learning that the RBI had been informed. Thomas (Managing Director) at the same time went to meet Singh (Director) and informed him of the current situation. RBI’s executive director then held a meeting with 6 high ranking officials and Thomas who then presented him with about the bank’s financial status


RBI officers were then dispatched to PMC Bank for confirmation and inspection of the records of the bank these investigators then got information from the whistle-blower and the bank’s inspection report. A special investigation team has been working since September and has arrested 12 accused so far in the case. Lending restrictions were then placed on the cooperative bank on September 23 by the RBI, restricting the max withdrawal limit for account holders to ₹ 1,000 total to not disturb the bank’s financial position. This limit was later slowly raised to ₹ 50,000 to give financial relief to thousands of its account holders whose cash was stuck inside the bank.

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