The first Disclosure
· RBI received an insider tip from a senior PMC official.
· Managing Director of the Bank revealed the misconduct through a five-page letter
The extent of the Fraud
· Economic Offences Wing of Mumbai Police pegs the losses at Rs 4355.43 crore incurred due to the fraudulent activities of Thomas and other senior executives.
· Initial inspection showed that 44 accounts were replaced by 21,049 dummy accounts.
· Out of the 44 bank accounts responsible for not paying back the huge loans taken from PMC Bank, 10 belonged to HDIL and the Wadhawans. Out of the 10 bank accounts, Sarang Wadhawan and Rakesh Wadhawan had one personal account each.
· The letter of the MD stated that the bank shared cordial relations with the owners of HDIL.
· PMC bank had started operation in 1984 and Wadhawan family had infused capital for its survival in the first two years & had current account overdrafts.
· In 2004, there was a tremendous withdrawal of deposit money at the backdrop of cooperative bank failures & Wadhawans helped the bank build depositors’ trust by keeping more than Rs 100 crores with the bank.
· Till 2007, the exposure went up to Rs 500 crores & the family-owned real estate business got listed as HDIL.
· Due to changes in government policies & other reasons, the HDIL group started facing liquidity crunch & defaults began. Eventually, the collections reduced & the accounts became stagnant.
Revelation From The Investigations Post Disclosure
· The exposure was too big and these accounts being listed as NPAs would have attracted regulatory action & caused reputation risk to the bank. Hence, the defaulting accounts of HDIL group were still shown as “Standard” accounts.
· Management Information Systems and NPC Identification Process were tampered with. In this, the bank had given special access codes to the HDIL accounts with restricted visibility to less than 25 out of PMC Bank's 1,800 staffers.
· While running the script for system identification of the NPAs, it deliberately excluded the HDIL accounts which were thus omitted from the system generated reports of NPA accounts, and ditto with the Overdrawn Accounts list.
· The PMC Bank's own MIS software called 'Opine' had a script for generating lists of newly sanctioned/disbursed accounts, but the undisclosed loan accounts were missing from this list.
· The stressed legacy accounts belonging to this group (HDIL) were replaced with dummy accounts to match the outstanding balances in the balance sheet. As the loans were mentioned as loans against deposits and were of lower amounts, they were never checked by the RBI or the auditors.
· The RBI affidavit after the preliminary inspection of the matter pointed out that the irregularities were not highlighted by the PMC Bank's concurrent auditors at the Sion Branch, where all these undisclosed accounts were parked though concurrent audits were carried out every month.
· The letter of the MD stated, “Since the bank was growing, the statutory auditors, due to their time constraints, were checking only the incremental advances and not the entire operations in all the accounts. They scrutinized the accounts which were shown by us.”
(Information & Image source: News articles available for public reference)
In the next part of this series, we would know the details of the PNB fraud case.
Stay tuned for the updates!!
Information is power 😊