Who is responsible for PMC Bank Crisis HDIL or Bank Officials?

Customer of Punjab and Maharashtra Cooperative Bank (PMC Bank) woke up to a shock on September 24. A message from the bank was sent saying it has been put under the directions of Reserve Bank Of India. Customers were told that they can withdraw only 1,000 in 6 months. RBI limited the withdrawal limit to Rs 1,000 first which was changed twice to Rs 10,000 and Rs 25,000 per person.

The customers stormed to various branches in minutes and demanded explanations from the staff. Police officers were deployed for extra security. At some places, branch officers were not in the branches which left account holders of the bank in the lurch. Bank ATMs were shut down and security guards were seen putting up an apology from the managing director.

The Bank’s management is superseded and the board gets dissolved when RBI
takes over

When a bank is under the directions of RBI, the bank’s management is superseded and the board gets dissolved. This occurs when the regulator is not satisfied with the functioning and takes the step to safeguard the borrower’s interest. In the case of PMC, the regulator found regularities in lending. Higher than permitted exposures and under-reporting of
non-performing assets could be a reason for RBI to take this step.

The Punjab Maharashtra Co-operative Bank (PMC) is in trouble for misreporting the bad loans to Housing Development and Infrastructure Ltd (HDIL), a real estate developer. HDIL have been provided loans to the tune of Rs 6,500 crore. Wadhwan’s were arrested for financial fraud on October 3.

Former Managing Director of PMC Bank, Joy Thomas informed the shareholders that the bank has been put under the regulatory restriction by the Reserve Bank of India for six months. The letter by Joy Thomas said that the top bank officials helped the HDIL in getting loans. It said that 44 hidden accounts were created and secured with passwords so that they don’t get caught by the RBI officials.

The annual report of Bank for the year 2018-19 suggests that the percentage of bank’s gross NPA to gross advances is 3.76 per cent while net NPA to net advances is 2.19 per cent for the year ended March 31. The total deposit records at Rs 11,617.34 crore.

Legacy accounts were replaced with dummy accounts

The letter of former Managing Director stressed that HDIL group’s legacy account was replaced with dummy accounts to match the outstanding balance in the overall balance sheet.

Bank of India filed a case on August 20 in the National Company Law Tribunal Mumbai bench against HDIL, as the realtor defaulted on payment of Rs 522.29 crore in December 2018 This has put a serious question on the minds of people that whether HDIL will able to pay the loan?

The principal amount and unpaid interest rates to banks and the financial institution is Rs 1,780 crore as per the report by HDIL’s latest annual report. Guruashish Construction Pvt Ltd, a wholly-owned subsidiary of HDIL has been taken for insolvency process by the Union Bank of India due to default in repayment of the interest and loan in July 2017.

Will PMC be able to recover its dues from HDIL?

The big question is how will PMC be able to recover its dues from a company whose cash flows are lower than its outstanding debt on books and its key subsidiary & the listed parent company is undergoing the insolvency process.

The annual report says that HDIL consolidated net cash of 387.37 crores from operating activity for March 31, 2019. This is almost 40 crores less than the previous year that stood at 425.37 crores a year ago. It also made an interest payment of Rs 280.62 crore last year. The total debt of the company stands at Rs 2,597.33 crore. The indebtedness includes -the current borrowings non-current liabilities and dues which have not been paid on unpaid debentures and loans. Nearly all of its bank balance of Rs 120.11 crore is pledged with banks. HDIL also has dues to its employees of 15.38 crore.

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