PMC Bank crisis: Mumbai police arrest HDIL's Rakesh Wadhawan, son Sarang; realty firm's assets worth Rs 3,500 cr attached

The Economic Offences Wing of the Mumbai Police arrested realty firm HDIL's Rakesh Kumar Wadhawan and his son Sarang Wadhawan, in connection with the Punjab and Maharashtra Cooperative (PMC) Bank loan case, said a media report. The police also attached property worth Rs 3,500 crore belonging to the bankrupt real estate company.

Earlier in the day, the Economic Offences Wing (EOW) had called Sarang and Rakesh for questioning and both were arrested as they allegedly did not co-operate with the officials.

The EOW is also investigating PMC Bank's former managing director Joy Thomas, reported CNBC-TV18

The PMC Bank had allegedly given loan

On 30 September, the Mumbai Police had filed a case against the former bank management and promoters of HDIL in the Punjab and Maharashtra Cooperative (PMC) Bank case. A Special Investigation Team (SIT) will probe the case.

Based on a complaint by the Reserve Bank of India (RBI)-appointed administrator, the city police’s EOW registered a First Information Report (FIR) in the case for forgery, cheating and criminal conspiracy against the officials.

The complaint, which names the bank’s chairman Waryam Singh and its MD Joy Thomas, was filed with the EOW of the Mumbai Police, according to a police official and a statement seen by Reuters. It also names Housing Development and Infrastructure Limited (HDIL) and its chairman Rakesh, who were beneficiaries of the loans.

The complaint was filed by RBI administrator Jasbir Singh Mattha in which he alleged that in the period starting 2008 till August 2019, the loans given to a particular company were not paid and had turned into NPA (non-performing asset). This information was not disclosed to the RBI as per banking norms, he said.

“As per initial investigations, the bank’s losses since 2008 were Rs 4,355.46 crore,” police said, according to a PTI report.

The FIR has been filed under Sections 409 (criminal breach of trust by a public servant or banker), 420 (cheating), and 465, 466 and 471 (related to forgery) of the Indian Penal Code along with 120 (b) (criminal conspiracy).

Waryam Singh was on the board of HDIL for nine years between 2006 and 2015 and had held 1.91 percent stake in the company during this period. He ceased to be a non-executive director of the company in March 2015. Before he exited the HDIL board, Singh had sold his entire stake in the company.

HDIL has sent a disclosure to exchanges after the confession letter by former PMC Bank MD Joy Thomas, saying the company will take necessary steps and extend full cooperation with all agencies/authorities.

Modus operandi

Explaining the modus operandi of the case, the FIR said that HDIL promoters allegedly colluded with the bank management to draw loans from the bank’s Bhandup branch. “Despite non-payment, the bank officials did not classify the loans as non-performing advances and intentionally hid the information about the same from RBI,” an official statement from the police said.

They also created fictitious accounts of companies which borrowed small sums of money, and created fake reports of the bank to hide from the regulatory supervision, it said.

Whistleblower board member approached RBI

The bank, which has 137 branches and over Rs 11,000 crore in deposits, has been put under restrictions since last week after the RBI discovered certain financial irregularities in the functioning of the multi-state lender.

Non-disclosure of the actual HDIL status (NPA since the past two-three years) and the quantum of the exposure to the group was leaked by one of the PMC board members himself to the Reserve Bank, forcing Thomas to confess the misreporting.

According to a source, Thomas wrote a four-and-a-half page detailed letter to the regulator giving details of how he, along with six key people who include a few board members, including chairman Waryam Singh and one or two senior bank officials, were sanctioning loans to the HDIL Group.

The source further said Thomas has also confessed that most of the board members were in the dark about these loans, PTI said.

According to sources, the overall exposure of the bank to the financially stressed HDIL group is around Rs 6,500 crore or over 73 percent of the advances, and all of it is not being serviced. Under the restrictions, which are to be applicable for six months, a depositor is able to withdraw only Rs 10,000 per account. It can also not take fresh deposits or extend any new loans.

The restrictions have led to a massive public outcry with people thronging the branches for their money. The RBI has said that 60 percent of the accounts have balances under Rs 10,000 and will not be impacted by the measures.

A special team has been formed to investigate the case, police added.

RBI takes charge, suspends MD 

The RBI last week took charge of the bank and suspended its MD, Thomas, and the bank’s board after uncovering lending irregularities at the bank, which has been barred from renewing, or granting any loans, or making investments without prior approval of the RBI.

The police complaint against PMC and HDIL officials was filed at the behest of an administrator, whom the RBI appointed last week to oversee the bank’s operations. The RBI has placed curbs on withdrawals from PMC, prompting protests among thousands of PMC’s depositors, whose funds have been largely frozen.

The complaint alleges that the PMC and HDIL officials purposely misled the RBI for over a decade from 2008 to August 2019 by failing to disclose big accounts that had become non-performing assets by producing forged audit reports.

The now-suspended managing director of the crisis-hit PMC Bank, Thomas, had reportedly admitted to the RBI that the bank's actual exposure to the bankrupt HDIL is over Rs 6,500 crore—four times the regulatory cap or a whopping 73 percent of its entire assets of Rs 8,880 crore, according to a PTI report.

— With inputs from agencies