A day after Punjab and Maharashtra Cooperative (PMC) bank’s suspended managing director Joy Thomas blamed auditors for the crisis where numerous Non-Performing Assets (NPA) by bank the were under-reported, two Housing Development and Infrastructure Limited (HDIL) directors, Rakesh Wadhawan and Sarang Wadhawan, have been arrested by the Mumbai Police’s Economic Offender’s Wing.
Thomas had earlier admitted to hiding HDIL NPAs through the use of 21,049 dummy accounts. Rakesh, the executive chairman of HDIL, and his son Sarang, its managing director, were both arrested on Thursday, with assets worth Rs 3,500 crore frozen.
In the FIR against PMC, the bank was estimated to have losses of Rs 4,355.46 crore since 2008. Among the top ten cooperative banks in India, PMC had deposits of Rs 11,617 crore and advances of Rs 8,383 crore by the end of March 2019.
The bank had reportedly hidden the extent of its NPAs, something that auditors did not spot but that the RBI did. While PMC reported its NPA levels at 2.19 per cent of assets, PTI cited sources saying the same was actually in double-digits. The companies it funded including many in real estate, with HDIL the leading one. PMC had issued loans to HDIL even after other banks declared the company a defaulter. HDIL was declared insolvent in August.
On September 24, the RBI announced that its depositors would not be allowed to withdraw amounts exceeding Rs 1,000. In addition, the bank was barred from issuing or renewing loans, advances; making investments, or incurring any liabilities including borrowing funds or accepting fresh deposits.
For customers, deposits of up to Rs one lakh were covered under the Deposit Insurance and Credit Guarantee Corporation (CIDGC). On September 27, the withdrawal limit per customer was raised to Rs 10,000.
Following the RBI action, Thomas asserted that the bank had enough liquidity to meet its liabilities, with HDIL being the sole reason for its crisis leading to regulatory action. Thomas said the bank had a loan-coverage ratio of between 100-110 per cent.
