Unbanked! What do all the headlines about the Punjab and Maharastra Cooperative Bank and HDIL mean?


Hey, I heard there has been another scandal with the Punjab National Bank??
No, this is a new scandal about the Punjab and Maharashtra Cooperative Bank or PMC Bank. The Punjab National Bank was the bank involved in the Nirav Modi scandal. 

What happened now? Well, the scandal involves money that runs into thousands of crores!

Whoa! That’s crazy! What is this bank anyway?? The PMC Bank was founded in 1984 and had 137 branches, 81 of which are in the Greater Mumbai region. They were quite a well-respected public bank, but it seems like they gave out some dodgy loans amounting to nearly Rs 6,200 crores to one company, called Housing Development & Infrastructure Ltd (HDIL). This amount is close to 75% of the loans given out by PMC Bank! This company didn’t pay back the loans given and so PMC Bank had no money to pay their actual customers. They were in big debt, and the bank has collapsed. 

Can a bank give such a big loan to one group? Not usually. The Reserve Bank of India has rules against this. These loans were given out over an 11 year period, and some of them were given in the names of fictitious or dead people to hide the fact that the loans eventually got to HDIL.

HDIL? Anyone I know? Actually, maybe you do. HDIL was run by Rakesh Kumar Wadhawan who was the Chairman of HDIL. His son, Sarang, was the Vice Chairman and MD. They are also big Bollywood circles and seen at all the ‘hip and happening’ dos in Mumbai. 

So what exactly is the story? HDIL was given over Rs 6,200* crores in loans over time. It is not unusual for a bank to give loans, but the problem was that HDIL was in massive debt and had been taken to the National Company Law Tribunal (NCLT) for bankruptcy proceedings (Bankruptcy is when a company is basically broke). So how did PMC think HDIL was going to pay the loan back? This was what shocked the financial world because who lends money to a broke company?  

Totally. So why did they do it? The Wadhwans have had ‘close ties’ with the bank for years. In fact, PMC Bank’s chairman, Waryam Singh, was on the board of HDIL from 2006-15. The bank’s Managing Director, Joy Thomas, also admitted that the bank had given loan to Wadhawan even after the company (HDIL) defaulted (that’s finance speak for not paid back) on its loans to other banks. Definitely something fishy. 

What happens next? The Wadhwans, Mr Thomas and Mr Singh have all been arrested on multiple fraud charges and are being interrogated by the Economic Offence Wing (EOW) of the Mumbai Police. The Reserve Bank of India (RBI) has put restrictions on the PMC Bank and has appointed an Administrator to look into all their dealings. 

What about the employees? And most importantly, the people who had money in the bank? Well in the beginning people panicked and naturally wanted to withdraw all their money but they were restricted to taking out only Rs. 1000! But the central bank has now extended the withdrawal limit to Rs 25,000.

Employees were obviously upset as well. Some even protested outside the houses of the Wadhwans in Mumbai. Political parties become involved too. Congress leader Sanjay Nirupam went with some local depositors to demand higher withdrawal limits and permission to withdraw money from savings account deposits for weddings, hospitalisation and student admissions. The BJP vice-president Kirit Somaiyya has demanded a probe and against the defaulters and culprits behind the scam. 

Gosh, I feel terrible for the poor people who are suffering because of a few bad apples. How will they manage? There are a few options. The RBI may merge PMC with another bank to cover losses. If the bank is shut down (which is less likely to happen), depositors will get Rs 1 lakh regardless of how much they had with the bank. The bank’s assets, things they own like property, etc. would probably all be sold and added to the payout. 

I guess that’s a silver lining. Yup, a small one. But the big fish are the ones that need to pay, and we hope they do! 

*Source Economic Times, Sept 28, 2019

Written by: Pereena Lamba. Pereena is a freelance writer, editor and creative consultant. She is also co-author of Totally Mumbai.

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