PMC Crisis
On 23 rd September 2019, the reserve of India has placed Punjab Maharashtra cooperative bank (PMC Bank) under direction for six months. It means for the period of a time PMC bank will directly oversee by RBI. The directives were passed on the account of major financial irregularities, failure of internal control & the system of bank & wrong reporting of its exposures under variance surveillance reports. The boards of PMC banks have also suspended under section 36AAA with section 56 of the banking regulation act,1949 & new administrators were appointed to take necessary actions in this regard.
Restriction on depositors
RBI also had put the restrictions on depositors to withdraw money from the bank. Initially, the limit was capped at Rs.1000 of total balance in every saving bank account & current or any other deposit account. As the situation improved RBI further relaxed withdrawal limit to Rs.10000 & subsequently raised to Rs.25000. after a lot of protest from the side of depositors, RBI has finally raised the limit to Rs.40000 where 77% of 16 lakh depositors can reprieve with this limit.
The thousands of depositors across the country were grappling with financial hardships due to the restriction imposed by the RBI on the withdrawal of their own money. further, five of the depositors have died in the last month, including one who has committed suicide. At least two dozen protests have been held by depositors across Mumbai. Many of the distraught depositors sounded dejected on October 30, with no solution in sight.
HDIL – the sole reason for the crisis
The bank, which has 137 branches and over Rs 11,000 crore in deposits, has been put under restrictions majorly due to the following reasons,
Financial irregularities and
The fraudulent issue of Rs.6500 crore (over 73 percent of the advances) to the financially stressed Housing Development & Infrastructure Ltd. (HDIL) group where all of it is not even being serviced.
According to the complaint against the bank more than than 14 people including the bank’s chairman and all of its directors were involved in the misappropriation of funds.
HDIL is one of the largest and oldest customers of the bank. Nearly 40%-50% of the bank’s turnover used to come from them only.
Modus operandi of HDIL and Bank
The arrested promotors of HDIL allegedly siphoned funds from PMC bank using overdraft facilities & money was “disguised” as loan accounts by bank officials. Suspended PMC bank’s director Jay Thomas used to debit the amounts of accounts of the HDIL holding companies & the cash was sent through hawala channel to a Dubai resident as Mehta, who used to send the money back to PMC as deposits, the funds were withdrawn from the bank as overdraft facilities, which were disguised in the form of various loan accounts of HDIL opened at PMC bank.
As per FIR, the bank allegedly replaced 44 loan accounts of HDIL & its companies with over 21000 fictitious loan accounts to conceal the extent of outstanding balances over Rs.4300 crore. The changes were made in documents of loan accounts given to RBI for the year ended 2018.
According to MD Thomas, the problem arose because of the under-reporting of NPA’s from the HDIL accounts. The slum redevelopment company which was landed in cash crunch had started delaying the payments for the past few years and due to good relations with the HDIL company also started under-reporting the numbers. There was a difference between actual numbers and reported numbers.
As per Thomas, the loan was fully secured and the bank can recover the dues by selling of company’s assets.
On November, 01 RBI has appointed the experts & have started valuating the HDIL’s properties, so that they can be auctioned. Once the properties are auctioned the money will be infused in the bank to pay the depositors.
Still, the question arises, when will depositors get their money back? Is depositor money safe?
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