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HomeEconomyHow PMC Bank hid its bad loans and duped RBI for years

How PMC Bank hid its bad loans and duped RBI for years

A letter by PMC Bank’s former managing director describes in detail how the bank duped RBI about its growing exposure to HDIL.

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Mumbai: An Indian bank was able to dupe regulators about its growing exposure to a single property developer for at least a decade before the firm filed for insolvency, according to a letter penned by the lender’s former managing director.

Punjab & Maharashtra Co-operative Bank Ltd. used “dummy accounts” and other methods to hide its oversized loans to Housing Development & Infrastructure Ltd. from the Reserve Bank of India, Joy Thomas wrote in the letter, a copy of which was reviewed by Bloomberg News.

“Every year during the course of RBI inspection we undergo into a lot of stress due to concealment of information from RBI,” Thomas wrote in his letter dated Sept. 21 and addressed to a senior supervisory official at the central bank. He said he also hid the true exposure from the PMC board and the bank’s auditors.

Last week, the RBI took the rare step of limiting withdrawals from PMC, causing depositors to besiege the bank’s branches to retrieve their money. It also removed the former management, including Thomas, citing major financial irregularities, a failure of internal controls, and inaccurate reporting that understated exposures.

PMC is one of some 97,000 cooperative lenders in India, which hold a combined $130 billion of deposits according to CLSA Ltd. — nearly a tenth of the wider industry’s total.

Among that plethora of lenders, only the 54 biggest are monitored by the central bank and investors are now trying to figure out whether they pose a new threat to a banking system hobbled by a 9.3% bad-loan ratio, the highest in the world.

Thomas said he stopped reporting to the RBI on the bank’s large exposures from 2008 “because of reputational risk.” By 2011, the exposure to HDIL stood at 10.2 billion rupees ($144 million), or more than half the bank’s total advances of 20 billion rupees, according to the letter. The RBI restricts single borrower exposures to one-fifth of the total.

Had the bank classified the assets as non-performing, “we would have had to stop charging interest on these accounts and we could have made losses,” Thomas said in the letter. “The growth path of the bank would have got hampered.”

Prior to 2015, PMC was able to conceal its HDIL exposure because RBI officers would only inspect a few of the largest borrower accounts, Thomas wrote. When the RBI started to ask for more details around 2017 “the stressed legacy accounts belonging to this group were replaced with dummy accounts to match the outstanding balances in the balance sheet,” he said.

The Press Trust of India reported on Sunday that Thomas had told the RBI that HDIL accounted for 73% of the bank’s total loan book.

Thomas couldn’t be reached for comment on Tuesday. The RBI didn’t immediately respond to a request for comment.

India’s cooperative banks, set up to serve areas where banking services aren’t widely available to all people, typically cater to poorer, less creditworthy customers.

The RBI monitors only the cooperative banks, including PMC, that are considered systemically important. Even the larger ones aren’t as intensively supervised as the commercial banks, however, because their respective state governments play a role in regulation.

Thomas said the close relationship with HDIL dated back to 1986 when the company founders rescued the bank by infusing capital and maintaining large deposits. – Bloomberg

Also read: PMC Bank crisis exposes failure of Indian regulators


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  1. This case is an evidence to prove that how borrowers outsmart banks and avail of loans, and avoid repayment, and how banks outsmart Reserve Bank and hide irregularities and avoid penal action. This also proves that if one has a gun one. Can rob a bank and if one has a bank he can rob people. Sorry state of affairs indeed. How to build trust in Banks which is the capital and backbone of banks in being in business is a million dollar question indeed.

  2. PM Mr Narendra Modiji should intervene in the PMC bank crisis and end the anguish of the depositors immediately by returning their hard-earned money to them.

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