PMC Bank Fraud

PUNJAB & MAHARASHTRA
CO- OPERATIVE BANK SCAM (PMC)

CRISIS
Submitted To-
Dr. Monika Agarwal
Submitted By-
Raghav Mittal
Introduction: Bank
Punjab & Maharashtra Co-operative Bank is a multi-state
scheduled co-operative bank. It was established on 13th February
1983.
 The bank has 137 branches across 7 states in India. Mumbai is the
main center of operation with 81 branches alone in Mumbai.
The bank operates in the states of Maharashtra, Delhi, Karnataka,
Goa, Gujarat, Andhra Pradesh and Madhya Pradesh.
The commencement of the banking business of PMC taken place
on February 13,1984. It operated nicely and within a time of 35 years,
the Bank has a wide network of 137 branches across six states.
PMC has 1814 number of employees and now this bank stands
among top 10 co-operative banks of the country.
Details Of Bank Fraud
 Punjab and Maharashtra Cooperative Bank (PMC Bank) faced
regulatory strike for misrepresenting its loan account.
 PMC had catered a loan worth Rs. 6,500 crore i.e. 73% of the
bank’s total advances to just one borrower group i.e. Housing
Development and Infrastructure Limited (HDIL) who was facing
bankruptcy proceedings.
 Granting loan of this scale, PMC clearly didn’t follow the RBI’s
guidelines of granting the loan amount to single borrower which
was 25% for a group connected companies and 15% for
individual companies.
 Along with this, PMC created 21,049 fictitious accounts to
misrepresent and to channel the loan amount to HDIL group
entities.
CONTIN..
 All these accounts were never disclosed to RBI. PMC advanced
the loan amount i.e. 6,500 crore to 44 different HDIL group
entities.
 This scam between PMC and HDIL has been existing since 2011
and on 24th September, 2019, this scam was revealed when RBI
intervened and asked for clarifications.
 . In the financial year 2018-2019, PMC stated its Gross Net
Performing Asset (GNPA) to be 3.76% which was comparatively
lower than other state owned banks.
 When RBI intervened and investigated, the percentage of GNPA
raised from 3.76% to 77%.
Some Of The Causes For PMC Fraud
 Misappropriation of Funds:
Misappropriation of Funds suggest intentional illegal use of funds for any
authorized or unauthorized use. PMC granted a loan to HDIL which was
defaulting payment to its creditors and was under purview of bankruptcy. The
Association of PMC and HDIL started in 2011 and was finally caught in 2019.
PMC kept on granting and lending funds consistently and misrepresented the
association in their statements and with regulatory bodies. This
misappropriation includes Rs. 6,500 crore i.e. 73% of total advances.
Misrepresentation of financial statements:
The association of PMC and HDIL started in the year 2011 and they have
been defaulting the transaction since then. It is impossible to get such a
transaction to cut loose in their financial statement. The profit figure and
non-performing assets were behaving oddly along with the performance of
the industry or category.
 Failure of Internal Control and Management System:
Such scandals are impossible to enact without the help of
management or top level authority. Misrepresenting such a huge
fund through creation of dummy accounts need support from the
respective chain of command. The PMC crisis is an evident example
of a failed control system or corrupt management system. All the
bodies and departments of PMC failed to take detective or
preventive or corrective actions against such scam. It took 9 long
years for this scam to come public and it shows a deep concern
regarding the ethical standards of business operations.
Legal Intervention in PMC Case
 After the assessment and complained registered by Reserve Bank of
India on 30th September, 2019, Mumbai Police filed a case of forgery,
cheating and criminal conspiracy against the former chairperson of
PMC Bank Mr. Waryman Singh and Managing Director Joy Thomas
and other senior officials of the bank and promoters of HDIL,
Executive Chairman Mr. Rakesh Kumar Wadhawan and his son Mr.
Sarang Wadhawan.
 The Enforcement Directorate filed a money laundering case in the
PMC Bank scam.
Regulatory Actions
Reserve Bank of India ordered Urban Cooperative Banks not to

expose more than 15% of its capital funds to individual investors.
Reserve Bank of India to set up a new cyber-security framework to
assess the variety and scale of digital product offerings of banks. This
framework will include bank-specific domain, periodic security
assessment, well-built cyber-security incident reporting mechanism,
governance framework etc.
Urban Cooperative Banks with their asset portfolio more than Rs.
500 crore need to report their business loan to RBI.
Cascading Effect
Urban Cooperative Banks are categorized into two Tier; Tier 1 and
Tier 2. Tier 1 comprises 69% of the total number of UCBs in
operations whereas Tier 2 is only 31 %. Despite their lower number,
Tier 2 has 87% of total deposit, 88% of Total Advances and 86.9 % of
total assets of total UCBs operation.
THANK YOU

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PUNJAB & MAHARASHTRA

CO- OPERATIVE BANK SCAM (PMC)

Reserve Bank of India ordered Urban Cooperative Banks not to

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