The Punjab and Maharashtra Cooperative (PMC) Bank’s corporate office is located on the third floor of Dreams Mall, a landmark building next to Bhandup station in Mumbai, developed by Wadhawan-promoted Housing Development Infrastructure Ltd (HDIL). Its AGM, scheduled for September 28, but now cancelled, was to be held at the Dreams Banquet, on the second floor of the tony mall.
The bank’s cosy relationship with realty firm HDIL goes much beyond this. PMC Bank virtually acted as the in-house banker of the company even when company was facing insolvency proceedings in the National Company Law Tribunal (NCLT). The Wadhawans have had close links with PMC Bank for a long time. PMC Bank’s Chairman Waryam Singh was on the board of HDIL for nine years — from 2006 till 2015 when he resigned as a director.
He also held 1.91 per cent stake in HDIL in 2015, as per the company’s annual report. Late Rajesh Wadhawan (brother of Rakesh Wadhawan), who was the Chairman of Dewan Housing Finance (DHFL) Chairman, was also earlier on the board of PMC Bank.
What has shocked bankers now is that HDIL extended a loan of Rs 96.50 crore on August 30 this year despite the fact that the company had defaulted on its own loans and those of other banks earlier and was taken to NCLT by public sector banks. HDIL used these funds to repay Bank of India which had taken the realty firm to NCLT for fund recovery.
In a letter to HDIL Sarang Wadhawan, Vice Chairman and Managing Director, HDIL, dated August 31, 2019, the bank acknowledged the receipt of two PMC Bank pay-orders (Rs 46.50 crore and Rs 50 crore) totalling Rs 96.50 crore towards one-time settlement (OTS) of the bank’s investments in the company’s non-convertible debentures.
BoI had filed an application with the Mumbai bench of the NCLT after HDIL failed to repay dues worth Rs 522 crore. Corporation Bank, Syndicate Bank and Indian Bank have also filed resolution pleas. “Pending a decision on the OTS proposal by the competent authority of the bank, we give our concurrence for keeping the CIRP (Corporate Insolvency Resolution Process) proceedings in abeyance for a period of two weeks,” BoI said in the letter.
“Normally, a bank goes to NCLT to recover its dues. Here a bank (PMC Bank) has given a loan to an entity which is already in the NCLT to settle another default,” said a banking source, who did not wish to be named. PMC Bank Managing Director Joy Thomas, however, said the bank had sufficient collateral along with Sarang Wadhawan’s personal guarantee. Sarang is the son of Rakesh Wadhawan, and HDIL’s Vice Chairman and Managing Director.
According to the bank’s Annual Report for the year ended March 2019, the bank’s advances against real estate, construction business and housing stood at Rs 984.69 crore. However, banking sources said the exposure is likely to be much more with estimates ranging from Rs 1,500- 2,500 core, and considering the fact that HDIL managed to get funds from PMC Bank even as late as August 30 this year.
“The Administrator appointed by the RBI, JB Bhoria, is expected to review the exposure of the bank to HDIL and other borrowers. A clear picture will emerge in the coming weeks. The exposure to HDIL is unlikely to be recovered in the near future,” said a source, who did not wish to be named. Though the PMC Bank refused to disclose its total exposure to HDIL, it has claimed it has enough assets to cover the liabilities.
According to the bank, its gross non-performing assets shot up from Rs 148 crore in March 2018 to Rs 315.24 crore in March 2019. This may well shoot up further when the RBI review is completed.
The bank’s statutory auditor, Lakdawala and Co, in the independent auditor’s report signed as recently as September 7, recorded nothing of concern and went on to state that the audit evidence they had obtained “is sufficient and appropriate to provide a basis for our audit opinion”. The auditor cleared the provisioning of Rs 26.82 crore as appearing to be “doubtful of recovery” when it came to the Bank’s advances (categorised as doubtful and loss assets as per prudential norms).
“During the course of our audit, we have generally not come across any violations of guidelines, conditions etc. issued by the Reserve Bank and National Agriculture and Rural Development Bank. To the best of our knowledge, no other matters have been specified by the Central Registrar, which require reporting under this rule,” the auditor said.