Four days after the Reserve Bank of India (RBI) barred Punjab and Maharashtra Cooperative (PMC) Bank from routine banking activities, the bank’s suspended managing director Joy Thomas Friday admitted the bank had extended Rs 2,500 crore loans — almost 30 per cent of its total loan portfolio of Rs 8,383 crore — to Housing Development Infrastructure Ltd (HDIL) over several years.
Though these loans turned non-performing assets, or bad loans, the bank purposely did not disclose the exposure to the RBI for the last seven years fearing it “will affect the bank’s growth”.
PMC Bank was put under restrictions under Section 35(A) of Banking Regulations Act, 1949, for under reporting of bad loans accounted by the HDIL group. The latest loan was in August of Rs 96.5 crore to HDIL’s Vice Chairman and MD Sarang Wadhawan despite the group being declared a defaulter. Thomas said in the last two-three years, HDIL has been unable to repay loans. Despite this, PMC Bank did not approach National Company Law Tribunal (NCLT). “We thought if we go to NCLT, it will take several years (to resolve). We had 2.5 times more security in the form of land and other assets over the loan,” he said.
As per the RBI norms, the bank can lend up to 15 per cent of its total capital to a single borrower and 40 per cent to a group. As its total capital funds were just over Rs 1,000 crore, the bank also violated the exposure norms. On September 19, PMC Bank officials met RBI executive director Rabi Mishra to disclose the loans extended to HDIL. On September 20, RBI officials visited the bank for inspection. On September 23, the RBI issued directions capping withdrawal limit to Rs 1,000 per account for next six months and suspended the board of bank.
Terming the RBI decision harsh, Thomas said, “We have only exceeded the exposure, for which we asked the RBI for resolution. We could have managed it in a better way had the RBI given us time,” he said. The bank did not anticipate RBI to put restrictions on the routine working.
“The reason we went to RBI was not because borrower (HDIL) will run away or not return the money, but because of the present market situation as a whole,” Thomas said. The bank has been engaged with HDIL group since 1989. Thomas claims the decision of loans was taken by central branch, not the board of directors.
“Instead of giving us a resolution or discussing with the board, the RBI did not give us time and suspended the board and appointed the administrator. This has caused problems for depositors and bank. We were maintaining the required reserve,” he said.
On Thursday, RBI extended relaxations to PMC account holders to withdraw Rs 10,000. The bank’s suspended MD said the bank may have made a technically wrong decision, but the decision was not taken to jeopardise the bank or its depositors. The bank, spread over five states, has 137 branches. Thomas joined the bank in 1987 when PMC was a single unit bank with Rs 40 lakh in deposits.
With the current restrictions, several account holders, specially those regularly depositing in the bank, have faced issues. “I don’t know how I will run my house with Rs 1,000. Despite having money in my account I have to go around borrowing money,” said Govandi resident Abdul Rehman, who works as lighting technician on production sets. Rehman stood from 10 am till 7 pm outside the bank’s Chembur branch on Tuesday to break his two FDs of Rs 1.5 lakh and Rs 50,000. On Wednesday he finally withdrew Rs 1,000 to buy grocery for home.
While the bank officials maintain no fraud has been committed, another depositor Ranjana Kharat, a domestic maid, said she has two children to look after and has entire money in bank. “The bank is giving no answer about what will happen to my fixed deposit,” she said.
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