RBI Explains How It Was 'Cheated' By Scam-Hit PMC Bank In Affidavit To Bombay HC
In an affidavit submitted to the Bombay High Court on Tuesday, the Reserve Bank of India (RBI) admitted that it was ‘cheated’ by the scam-hit Punjab & Maharashtra Cooperative (PMC) Bank, Livemint reported.
The affidavit, filed by Rajlaxmi Sethi, Assistant General Manager, Department of Co-operative Bank Supervision, RBI, states that the scam-hit PMC Bank had submitted fraudulently manipulated data to the central bank, but “the sample of accounts picked for inspection did not contain undisclosed accounts of Housing Development and Infrastructure Ltd (HDIL).”
After the HDIL accounts submitted by the PMC bank were analysed by the RBI team, the majority of these accounts were identified as non-performing assets. The inspections conducted also found that the PMC Bank had sanctioned mortgage limits to a subsidiary of the HDIL. PMC Chairman, S. Waryam Singh chaired a board meeting to approve the mortgage overdraft in which he was interested, violating the RBI norms.
The RBI inspection team found a connection between Waryam Singh and HDIL promoters/directors, which helped them get credit facilities, and later pay off the one-time settlement of dues with other lenders, the affidavit said.
The magnitude of such a violation and the lending was much lower due to the ‘camouflaging’ by the PMC Bank, and hence it could not be confirmed if it significantly affected the bank’s finance.
On September 19, 2019, the RBI sent a team for the annual financial inspection of the PMC Bank for detailed scrutiny of the HDIL accounts, with special focus on the dealings and exposure of the bank with the HDIL group. The inspection was completed on November 2, 2019, and the report is currently being prepared, the affidavit said.
As per the findings available now, due to financial irregularities, the PMC Bank’s net worth was negative, with a significant decrease in deposits.
Explaining the “modus operandi of hiding the information related to HDIL exposure” by the PMC Bank, the RBI affidavit said that the PMC tampered with Management Information Systems and National Privacy Commission (NPC) Identification Process by granting special access codes to the HDIL accounts with controlled visibility to only 25 out of 1,800 staffers at the bank.
During the system identification of the NPAs, the bank deliberately excluded the HDIL accounts, omitting them from the system generated reports of NPA accounts and the Overdrawn Accounts list.
The PMC Bank’s own Management Information System (MIS) software called ‘Opine’ had a generating list of freshly sanctioned/disbursed accounts, but the undisclosed loan accounts were not mentioned in the list. The PMC Bank’s auditors did not highlight these irregularities at the Sion Branch, where all these undisclosed accounts were concealed, even though audits were carried out every month.
Besides, the undisclosed loan accounts to HDIL group, sanctioned by then PMC Bank Managing Director K. Joy Thomas were not recorded in the minutes of the Loan Committee, Recovery Committee, or the Board of Directors. The affidavit said that PMC Bank forged information provided to the RBI inspection team and conducted false booking of profits.
However, the RBI moved to protect depositors interests by imposing sanctions on the bank on September 23. It suspended its Board of Directors and appointed an administrator to evaluate the securities provided by HDIL to auction them to recover the dues.