There is regulatory oversight. PMC Bank had had lent about Rs 6,500 crore, that is, almost three-fourths of its total lending worth Rs 8,800 crore to HDIL.



The human cost of the collapse of the Punjab and Maharashtra Co-operative (PMC) Bank is becoming evident. By the time of writing of these lines, two depositors have died of heart attack, whereas one allegedly committed suicide. It was not a daylight robbery; it was a long-drawn loot, just as that of the Punjab National Bank by Nirav Modi. Everybody, from the Reserve Bank of India (RBI) to the state government to the auditors, was either caught napping or was apparently complicit. What is more unfortunate is that few lessons are likely to be learnt from the Rs 4,355 crore scam.

A number of heart-wrenching stories have been reported in the media. A 51-year-old person, Sanjay Gulati, saw his lifelong savings of Rs 90 lakh evaporate. He participated in a protest over the issue, returned home, suffered a cardiac arrest, and succumbed to it. Another customer, Fattomal Punjabi, also died of heart fail. The 39-year-old Dr Nivedita Bijlani had deposits of more than Rs 1 crore PMC Bank. She allegedly committed suicide.

Whatever happened to the various mechanisms that are supposed check financial fraud? There is regulatory oversight; the RBI is the banking regulator. Cooperative banks like PMC are also under the jurisdiction of the state authorities. Then there are audits. Yet, the promoters of PMC Bank and of the now bankrupt Housing Development and Infrastructure Ltd (HDIL) were hand in glove for years. In fact, PMC Bank had had lent about Rs 6,500 crore—that is, almost three-fourths of its total lending worth Rs 8,800 crore—to HDIL.

The Economic Offences Wing of Mumbai Police has informed the court that PMC masked the 44 loan accounts of the HDIL group with more than 21,000 fictitious loan accounts. When people like us interact with banks—opening or closing an account, electronic money transfer, etc.—we are burdened with a myriad of compliances, but there is nothing in statute books or law enforcement that checks the likes of former PMC Bank chairman Waryam Singh and managing director Joy Thomas, both of whom are now behind bars. After thousands of crores of hard-earned money of common people have vanished, it seems that crooks can just walk away with cash.

It will be instructive to note that it was a whistleblower’s activism rather than the vigil of any regulatory body or state authority that led to the expose. When large withdrawals began in the second half of last month, the whistleblower complained to the RBI. This necessitated Thomas’ “confession letter,” to the banking regulator admitting that the exposure to HDIL was in excess of Rs 6,500 crore. He wrote: “The loans outstanding were huge and if these were classified as non-performing assets, it would have affected the profitability of the bank, and the bank would have faced regulatory action from RBI… This would have created a reputation risk for the bank. As the HDIL group had a good record of clearing their dues with certain delays, we continued to report all the accounts as standard accounts.”

So, to keep up the appearances, the bank, which was practically insolvent, reported a net profit of Rs 99.69 crore last fiscal; the previous year it was 100.90 crores a year ago. The annual report was audited by Lakdawala and Co. The Institute of Chartered Accountants of India is probing Lakdawala and Co.

Many people have been arrested; they may even be convicted, but the point is that a lot of money has been lost and that is unlikely to be recovered. This is not surprising given the very nature of cooperative banking.

Cooperatives in general have been supported by intellectuals, given their hatred for capitalism; the cooperative movement, like socialism, was indeed seen as an alternative to capitalism. They fitted beautifully in the Gandhian fantasies and socialist theories; people contributing their money to set banks owned by them only and helping them only. It was banking for, of, and by people.

The reality, however, proved to be different: the cooperatives in large parts of the country are controlled by politicians. This is the reason that banks like PMC escape oversight. Interestingly, such fears were there even at the time of Independence, when India made its tryst with socialism. The RBI’s website points out that there were concerns regarding the professionalism of urban cooperative banks: “Large cooperative banks with paid-up share capital and reserves of Rs1 lakh were brought under the purview of the Banking Regulation Act, 1949, with effect from 1st March, 1966.”

This meant that cooperative banks came within the ambit of the RBI’s supervision over half a century ago. “This marked the beginning of an era of duality of control over these banks. Banking related functions (viz. licensing, area of operations, interest rates, etc.) were to be governed by RBI and registration, management, audit and liquidation, etc. governed by state governments as per the provisions of respective state Acts,” the RBI website says.

Evidently, neither the banking regulator nor state governments have performed their duties properly. The beneficiaries were deceitful bankers and egregious businessmen with their private jets, Rolls Royces, and yachts. The losers were depositors.

The author is Editor,


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