PMC Bank scam: Five prime accused involved in fraud behind bars now, about Rs 4,000 cr assets seized; all you need to know

  • On 17 September this year, a whistleblower informed the RBI of the mess at PMC Bank

  • On 4 October, Thomas was arrested in connection with the alleged scam at the bank by the EOW of Mumbai Police

  • On 14 October, the ED seized and identified assets worth Rs 3,830 crore, including private jets and a yacht belonging to the HDIL group

In a major setback to the aggrieved depositors of the fraud-hit PMC Bank, the Supreme Court refused to grant relief to the depositors after they approached the apex court with a Public Interest Litigation (PIL).

A bench headed by Chief Justice of India Ranjan Gogoi said, "We are not inclined to entertain this petition under Article 32 (writ jurisdiction). The petitioner can approach the high court concerned for appropriate relief".

Earlier, the Economic Offences Wing (EOW) of the Mumbai police arrested five persons in connection with the scam at Punjab and Maharashtra Co-operative Bank so far this month.

The Enforcement Directorate also seized assets worth about Rs 4,000 crore belonging to the promoters of Housing Development and Infrastructure Ltd (HDIL) in connection with the scam.

The EOW has intensified its probe into the scam to nab more people involved in the fraud and also is in the process of identifying more moveable and immovable assets belonging to the accused.

Here is a look at the events that unfolded the scam:

How the scam was unearthed

On 17 September this year, a whistleblower informed the Reserve Bank of India (RBI) of the mess at PMC Bank. Acting on it, on 23 September, the central bank placed PMC Bank under an administrator, suspended the management and also banned it from carrying regular banking activities.

On 23 September, the RBI superseded the board of PMC Bank and appointed Jai Bhagwan Bhoria as the administrator of the bank.

The whistleblower report detailed the massive misreporting of non-performing assets (NPAs) by the bank, primarily because of its huge exposure to crippled developer HDIL.

HDIL owes around Rs 6,500 crore to the bank-as much as 73 percent of its total loan book—as per the whistleblower and also its suspended managing director (MD), Joy Thomas' admission to the RBI.

The bank was put under restrictions by the RBI after an alleged fraud of Rs 4,355 crore scam came to light.

On 24 September, the RBI set the withdrawal limit for the depositors at Rs 1,000 per account.

The withdrawal limit was subsequently raised to Rs 10,000 on 26 October after protest by bank account holders.

On 3 October, the RBI had raised the withdrawal limit to Rs 25,000 from Rs 10,000 for the depositors.

On 14 October, the RBI hiked withdrawal limit for PMC Bank depositors to Rs 40,000 Rs from Rs 25,000.

 PMC Bank scam: Five prime accused involved in fraud behind bars now, about Rs 4,000 cr assets seized; all you need to know

Representational image. PTI

Former MD's letter blames auditors for mess

On 25 September, Managing Director of PMC Bank, Joy Thomas, was suspended.

Thomas blamed the auditors for the mess at the bank, accusing them of only "superficially auditing" the books of the now crippled lender due to "time constraints".

In a five-page letter to the RBI dated 21 September after a board member blew the lid on the fraud at PMC Bank, Thomas confessed to the role of the top management. He revealed the role of the management, including a few board members, in hiding the actual NPA numbers and also the actual exposure to the bankrupt HDIL, which is stated to be around Rs 6,500 crore or over 73 percent of its total loan book of Rs 8,880 crore.

While Thomas has not named any auditor in the letter to the RBI written two days before the regulatory clamp down which PTI has reviewed, according to its annual report for FY19, the bank had three auditors — Lakdawala & Co, Ashok Jayesh & Associates and DB Ketkar & Co since FY11.

The shallow auditing of the books of PMC by its statutory auditors was done as the 'bank was growing', Thomas claimed in the letter.

The letter of Thomas is part of the first information report (FIR) filed by the EOW of the Mumbai Police.

"Since the bank was growing the statutory auditors, due to their time constraints, were checking only the incremental advances and not the entire operations in all the accounts," Thomas claimed in the letter.

"The statutory auditors validated the incremental loans and advances and scrutinised the accounts which were shown to them by the bank," he added.

In the past eight years, PMC Bank had three statutory auditors — Lakdawala & Co (FY19 and FY18); Ashok Jayesh & Associates (FY17, FY15, and FY11) and DB Ketkar & Co (FY14 and FY12).

Thomas confirmed that the exposure to the bankrupt HDIL Group continued to remain standard despite a delay in repayments for over three years. The bank's exposure to HDIL Group was around Rs 6,500 crore as of  19 September 2019, he admitted in the letter.

He said some of the large accounts were not reported to the RBI from 2008 because of fear of reputational risks.

"The concealment of information from the board, auditors and regulators was due to the fear of reputational loss," Thomas informed the RBI.

He said prior to 2015, a few top borrowers would be mostly checked as reported by the bank branch-wise. Therefore those accounts did not come into the picture and it was around 2017 onwards when the RBI started asking for details of the advances.

PMC Bank chairman, MD, promoters of HDIL arrested

On 4 October, Thomas was arrested in connection with the alleged scam at the bank by the EOW of Mumbai Police, according to a report in Mint.

Thomas was summoned to the EOW office and arrested after questioning.

On 4 October, the EOW had also arrested HDIL directors Rakesh Wadhawan and his son Sarang Wadhawan in the case.

A Mumbai court, meanwhile, remanded Wadhawans and PMC Bank's former chairman Waryam Singh in judicial custody till 23 October.

Singh owns a five-star hotel in Punjab which is valued at current prices at Rs 400 crore to Rs 500 crore from the ill-gotten money of PMC Bank. Moreover, he has property worth Rs 2,500 crore near Juhu beach, the police have alleged.

On Thursday, a Mumbai court remanded PMC Bank's former director Surjit Singh Arora in police custody till 22 October in connection with the multi-crore scam at the bank.

Mumbai Police's EOW, which is probing the scam, told the court that Arora "abused his official position to facilitate the fraud".

Meanwhile, the Wadhawans have requested the Reserve Bank of India (RBI) and investigation agencies to sell off their assets, including a yacht, a Rolls Royce car and an aircraft, to pay off the bank's dues.

The HDIL promoters in a letter to the Enforcement Directorate (ED), the Union Finance Ministry and the RBI, requested that they be allowed to sell off 18 of their attached assets.

Nirmala Sitharaman's assurance to account holders

On 10 October, assuring account holders of troubled PMC Bank of support, Finance Minister Nirmala Sitharaman said that she has spoken to the RBI governor, who assured that customers' concerns will be taken on top priority.

The bank was put under "directions" by the RBI last month due to weak financial health, wherein the central bank has capped the deposit withdrawals at Rs 25,000.

"Spoken to governor @RBI on the #PMCBank matter. He assured me that clients & their concerns will be kept on top priority. I wish to reiterate that @FinMinIndia will ensure that customers concerns are comprehensively addressed. We understand the justified worries of the customers," she said in a tweet.

ED seizes assets worth Rs 3,830 cr

On 14 October, the ED seized and identified assets worth Rs 3,830 crore, including private jets and a yacht belonging to the HDIL group, in connection with its probe in the PMC Bank money laundering case, reported PTI.

The central agency said it is in the process of conducting the valuation of a number of properties of HDIL, its directors, promoters, PMC Bank officials and others as part of the investigation.

The assets, both immovable and movable, will be attached under provisions of the Prevention of Money Laundering Act (PMLA) after valuation, it said.

"The total value of movable and immovable assets seized, frozen and identified by ED being the proceeds of crime, in this case, is more than Rs 3,830 crore which does not include value of 80 unencumbered properties around Mumbai.

High-end assets like ten cars, including Rolls Royce, Bentley and Range Rover, recovered from the residential premises of Rakesh Wadhawan, have been seized.

Two aircraft —Bombardier Challenger-300 VT and Falcon 2000 VT HDL, owned by Privilege Airways Private Limited -- have been frozen against operation by the agency.

Two account holders die of heart attack, one commits suicide

Ever since the scam unfolded, as many as three stressed account holders have died so far in Mumbai.

On 14 October,  51-year-old Sanjay Gulati died of cardiac arrest after returning from a protest in the PMC Bank issue.

The next day, another customer of the scam-hit bank Fattomal Punjabi also died due to heart attack.

On 16 October, a depositor of the bank allegedly identified as Nivedita Bijlani (39) committed suicide in Mumbai. She is said to have deposits of over Rs 1 crore with PMC Bank. The police, however, has denied any link to the PMC Bank issue with her suicide.

PIL filed seeking full protection of customers

On 16 October, a PIL was filed by Bijon Mishra seeking the full protection of over 15 lakh affected bank customers and 100 percent insurance cover over their savings with the institution.

The PIL was filed seeking to lay down comprehensive and exhaustive guidelines to tackle crises like PMC Bank.

As crisis-hit PMC bank depositors intensified their protests, the Supreme Court agreed to hear on Friday an urgent plea seeking directions for interim measures to safeguard the money of customers blocked in the bank.

The plea on Wednesday for the apex court to step in amid three deaths linked to the crisis in the PMC Bank came even as the bank's administrator met the RBI's top brass including governor Shaktikanta Das and assured depositors that all efforts will be made to safeguard their interests.

In the apex court, the plea for urgent listing was mentioned before a bench of justices NV Ramana, R Subhash Reddy and BR Gavai.

The plea, filed by Delhi-based Bejon Kumar Misra, said the Centre and the RBI should be directed to ensure complete insulation and insurance of the hard-earned money of customers in various cooperative banks, including nationalised banks, by enacting 100 percent insurance coverage towards the deposited amount.

RBI employees union wants co-operative bank under central bank's control 

In the wake of the scam at PMC Bank, the All-India Reserve Bank Employees Association suggested ending the dual jurisdiction of urban cooperatives and bringing them under RBI jurisdiction.

The union also said RBI should carry out onsite supervision of all cooperative banks instead of the present annual offsite supervision.

PMC Bank is under regulatory restriction since 23 September after the RBI found that financial irregularities at the bank.

Since January, the RBI had placed as many as 24 cooperative banks under its administrator.

"Dual jurisdiction of urban cooperatives under the registrars of cooperative societies of states and RBI should end. It creates unwarranted dichotomy and gives scope for mismanagement and malfeasance. They should come exclusively under the RBI jurisdiction like banks," the union said.

Urban cooperative banks are registered as cooperative societies either with the State Cooperative Societies Act of each state or under the Multi-State Cooperative Societies Act of 2002. They are regulated and supervised by the Registrar of Cooperative Societies of states or by the Central Registrar of Cooperative Societies.

The RBI only regulates and supervises their banking functions and thus has less control on management and carries out on-site inspections and off-site surveillance on them. It also issues operational directions to them to streamline their functioning and to protect the interest of depositors.

"All cooperative banks, particular ly their head offices, should be brought under regular on-site supervision of RBI instead of the present offsite surveillance which has failed to detect fraudulent reporting," the union said.

HDIL accounted for over 70% of PMC Bank advances

HDIL allegedly accounted for over 70 percent of the bank's Rs 9,000 crore advances. According to the Mumbai Police's Economic Offences Wing, HDIL's loans turned non-performing assets (NPAs), but the bank management allegedly hid this from the RBI's scrutiny.

The bank, over a long period of time, had given over Rs 6,500 crore in loans to HDIL, which is 73 percent of its total advances, and which has turned sour with a shift in the fortunes of the now-bankrupt company.

Its total loans stand at Rs 8,880 crore and the deposits at over Rs 11,610 crore. There have been massive protests across the city from the depositors following the RBI action.

It is found that around 21,049 bank accounts were opened by bogus names to conceal 44 loan accounts. The bank's software was also tampered to conceal these loan accounts.

Thomas embraced Islam to marry assistant

Thomas, the former managing director of scam-hit PMC Bank, converted to Islam and became Junaid Khan to marry his personal assistant, with whom he allegedly jointly owns 10 properties in Pune, said a report in NDTV quoting police officials.

The Mumbai police's EOW, which is investigating the fraud case, has found that since 2012, Thomas, 62, had purchased nine flats and a shop in Kondhwa and other areas of Pune.

These ten properties were purchased jointly by Thomas and his second wife, who was his former assistant at the bank, the officials said.

All these properties were bought by the husband-wife duo since the beginning of 2012, they said.

This was also the time when the Wadhawans of HDIL began to default on loans taken from the bank, but kept borrowing additional amounts from the cooperative lender, they said.

The source of money used by Thomas and his second wife to buy these properties is being ascertained, they said.

"We are yet to find out the share percentage of ownership in these ten properties," an official said.

Besides the ten properties in Pune, Thomas also owns a flat in adjoining Thane and a commercial property which is under the control of his son from his first wife, he said.

 

With inputs from agencies

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Updated Date: Oct 18, 2019 20:41:24 IST