PMC Bank Falsified Records, Treated NPA Accounts As Non-NPA; RBI Tells Bombay HC, Court Refuses To Interfere With Withdrawal Restrictions

The bench of Justice SC Dharmadhikari and Justice RI Chagla was hearing a batch of petitions and PIL filed by depositors of PMC bank challenging RBI's restrictions on withdrawal. Court refused to interfere with the restrictions on withdrawal imposed by RBI.

RBI informed the bench through an affidavit that in order to mitigate the hardship faced by depositors, a former employee has been entrusted with the responsibility of considering on merit any application for withdrawal beyond the stipulated amount on grounds of medical treatment, marriage, education, livelihood and other hardships. The said withdrawal will be subject to a ceiling of Rs.1 lakh for medical reasons and Rs.50,000 in all other cases.

Rajlaxmi Sethi, Assistant General Manager, Department of Co-operative Bank Supervision, Reserve Bank of India filed the affidavit before the High Court and apologised for a delay in filing the affidavit as the Court in its order dated November 4 had directed RBI to file the same by November 13.

Through the affidavit, RBI informed the Court that a thorough scrutiny of the records and affairs of PMC bank is underway.

The affidavit states-

"Accounts in of the bank are audited at various levels, these include-

(a) Audit by an internal auditor

(b) Audit by a concurrent auditor and

(c) Audit by Statutory Auditors for the bank

Since PMC bank is a multi-state scheduled co-operative bank, it is obligated to appoint the statutory auditor from a panel of auditors maintained by the Central registrar for Co-operative Societies."

Referring to a RBI Inspection Report dated March 31, 2018, affidavit states-

"The bank submitted fraudulently manipulated data to RBI for sample checks, the sample of accounts picked for inspection did not contain undisclosed HDIL related accounts. The disclosed HDIL accounts were seen and majority of them were assessed as NPA's.

Conflict of interest of Shri Waryam Singh as Chairman of PMC Bank and as a former Managing Director of HDIL was also commented upon in the report along with the attempt by the bank to show disclosed accounts of HDIL group as standard by sanction of new loans to close old NPA accounts in non-adherence of RBI Master Circular dated July 1, 2015 on IRAC norms. Consequently, the assessed NPA's of the bank were significantly higher than the reported NPAs."

Thereafter, on September 19, 2019, deputed a team to carry out Annual Financial Inspection of the bank and for a thorough scrutiny of HDIL accounts. Preliminary findings of the said inspection revealed that the bank's net worth had turned negative and deposits had eroded significantly due to following actions on part of the bank officials-

(i) Tampering with management information system and NPA identification process.

(ii) Sanction of loan accounts by MD and non-mentioning of loan sanctions in the Loan Committee Minutes and the BoD minutes.

(iii) Falsification of offsite returns submitted to the RBI

(iv) Falsification of information indent submitted to the inspection team

(v) Fictitious booking of profits

Once RBI placed PMC under Section 35A read with Section 56 of the Banking Regulation Act on September 23, withdrawal of deposits was restricted to Rs.1000, which was subsequently increased to Rs.50,000 with effect from November 5. RBI's affidavit states that with this latest relaxation, 78% depositors of the bank will be able to withdraw their entire account balance.

The next date of hearing is December 4.