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PMC Bank Scam: Fake Accounts, Undereporting of NPAs — RBI Got a Letter Eight Years Back

In September 2019, RBI found that more than 70 per cent of a total of over Rs 8,000-crore in loans made by PMC Bank had gone to just one entity,

In September 2019, RBI found that more than 70 per cent of a total of over Rs 8,000-crore in loans made by PMC Bank had gone to just one entity,

A whistle-blower's letter points to early warnings given to RBI about the PMC scandal eight years prior indicating fraudulent activities at the PMC Bank.

A letter from a PMC Bank whistle-blower points to early warnings given to RBI, in spite of which the scam unfolded with massive fallout. Pertaining to the PMC bank scandal of 2019 and the restrictions imposed by Reserve Bank of India (RBI) after the latter discovered financial irregularities and under-reporting of bad loans, new information has come to light.

According to an exclusive report by Moneycontrol, information has been unearthed about a letter that was sent as early as January 2011, in which a whistle-blower had forewarned RBI of the financial irregularities at the bank.

As per the information released by Moneycontrol, On January 28, 2011, an employee of PMC Bank had sent a letter to a chief general manager-in-charge of RBI in the Urban Banks Department, by the name of A Udgata. The letter highlighted the bank’s dealings with two other entities – the Housing Development Infrastructure Ltd (HDIL) and Dewan Housing Finance Corporation (DHFL). The letter highlighted the connection between PMC Bank’s top management and the two companies which were controlled by the Wadhawans.

The whistle-blower also went as far as to highlight the gross underreporting of Non-Profit Assets (NPAs), entry of fake deposits, fudging of loan accounts and evergreening of loans.

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As per the whistle-blower’s letter, many of the top borrowers were related to the director of the bank and even top bank executives. Due to this, bank executives were asked to intentionally manipulate the accounts to facilitate loans that were sanctioned by creating fresh proprietary firms and issuing new loans to these companies to close earlier NPAs.

The caveat of this entire sordid tale is that this could have all been easily prevented had it not been for a series of unfortunate events. For one, RBI did in fact recognise the letter and acknowledged the same. On March 7, 2011, RBI sent its own letter to the CEO of PMC Bank, in which it asked him to investigate this issue and provide a response to the regulator. However, the then CEO, Joy Thomas, was himself at the centre of this debacle. After thorough investigations were conducted, it was revealed that Thomas had earlier converted to Islam and led a double life under the alias of Junaid Khan in an attempt to marry his assistant. It was also discovered that he had gifted her with nine flats in Pune. After this discovery, he was arrested by the Mumbai Police on October 2019.

Despite all the early warning bells, it could not have turned out any other way as the scam had taken root from the inside out, starting all the way from the top brass.

As far as audits go, Lakdawala and Co, the statutory auditors for PMC Bank had given it an audit classification of ‘A’ rating. This is the highest rating given, indicating that everything was running smoothly at the bank. This comes at a time when there was clearly large-scale fudging of accounts and when fraud was running rampant throughout the institution. This brings into question the very role of the auditors in the scam.

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first published:June 29, 2021, 13:23 IST