Finance Explained

The PMC Bank Scandal, also known as the Punjab and Maharashtra Cooperative Bank Scandal, was a financial scandal that came to light in September 2019. The scandal involved a massive fraud committed by the bank’s management and directors, who were accused of misusing depositors’ funds and hiding bad loans.

The fraud was discovered when the Reserve Bank of India (RBI) placed the bank under regulatory restrictions and appointed an administrator to take control of its operations. The RBI’s action was prompted by a huge divergence in the bank’s reported non-performing assets (NPAs) and the actual NPAs on its books.

Upon investigation, it was revealed that the bank’s management, led by its then-managing director, Joy Thomas, had extended loans to several real estate and infrastructure companies without following proper norms and procedures. The bank’s management also allegedly created fake accounts and used the money in them to lend to these companies.

Furthermore, the bank’s management allegedly disguised these loans as investments in non-convertible debentures (NCDs) of a group of companies, known as HDIL (Housing Development and Infrastructure Limited), to conceal the true nature of the loans.

The bank’s management also allegedly inflated the bank’s deposit base and understated the NPAs in its financial statements. This allowed the bank to continue to lend money and attract new deposits, even as the bank was on the brink of collapse.

The PMC Bank Scandal caused a lot of distress for the bank’s depositors, many of whom had their deposits locked in for six months by the RBI, and for the bank’s employees, many of whom lost their jobs.

The PMC bank Scandal has also raised serious questions about the role of the regulatory authorities in supervising the cooperative banks and the need for stricter regulations and more effective enforcement mechanisms to prevent such frauds in the future. Several officials and individuals including the bank’s MD, Joy Thomas and the HDIL group’s directors, Rakesh Wadhawan and Sarang Wadhawan were arrested and charged with criminal conspiracy, cheating and forgery among other charges under the Indian Penal Code and Prevention of Money Laundering Act.

The PMC Bank Scandal is a stark reminder of the need for constant vigilance and oversight in the financial sector to ensure the safety and security of depositors’ funds and the integrity of the financial system.