Addressed to the Chief General Manager of RBI dated 21st September, the confessional letter of the beleaguered PMC Bank Managing Director is important for many reasons. Most of all, it shows how in good faith one can go on making mistakes after mistakes. The letter could be a lesson for those involved in banking business and and that is why we are reproducing it-Editor
I, the Managing Director Mr. Joy Thomas joined this bank as General Manager although was having the powers of Managing Director, of the Bank in the year March 1987 and was re-designated to the post of Managing Director in the year 1999.
PMC Bank had commenced its operations in February 1984 as unit bank single branch operation) with the capital of Rs. 10.00 lakh. However, within a couple of years, the then board was reconstituted in 1986, due to the apprehension of closure of the bank due to some unlawful deeds of some of the borrowers/member. This was the time, when Late Mr. Rajesh Kumar Wadhawan, the then director of Land Development Corporation and many other companies, run by the Dewan family, along with his brother Mr. Rakesh Kumar Wadhawan (present director of HDIL) came to the rescue of the Bank. Networth of the bank became negative and the bank was facing troubles. This family infused capital, help the bank and also helped to bring the networth of the bank from negative to positive.
In the year 1986-87 they further infused capital of Rs. 13.00 lakh and huge quantum of deposits for revival of the bank. Since then the Dewan family started banking with the bank as depositor. The loan and advances relation started in late 1990s. These advances were mostly in the form of
overdrawn in current accounts of various firms of the companies of the family due to cheque presented in clearing. The accounts were regularized on regular basis. The operations in these accounts were good and satisfactory.
In the year 2004, the bank again faced a run on the bank due to simultaneous failure of Maratha Mandir Co-op Bank, South Indian Bank and Global Trust Bank. There were huge withdrawal of the deposit of the bank from 13 August 2004. The bank was honoring all the payments of deposit on 24 7 basis from August 2004 till 17th August 2004. It was on 17 august 2004, when the confidence of the deposits started building up again. At the time of the run, many people helped the bank in gaining the position with the funds and stood behind the bank in support. Mr. Rajesh Kumar Wadhawan was one of them and deposited more than Rs. 100 crores to tide over the liquidity crunch faced by the bank.
Since the time Mr. Rakesh kumar Wadhawan (Director of HDIL) started banking with the bank and the performance of all his accounts were good. More than 60% transactions of the bank were from this group. This group was dealing with purchase of Land & Developing them. Their operations were mostly from Vasai, Virar and Palghar area. They had huge land bank in those areas and they used to do all their all land purchase and development turnover with our Bank only. In connection with their business, their accounts used to get overdrawn and thereafter they used to get cleared also in due course of time. In this process, our bank used to charge 18% to 24% interest from their accounts and earned very good profit. These accounts used to get regularized from time to time. Thus, bank used to had a lot of income which helped in the growth of the Bank. The Wadhawan group exposure were around Rs.500 Crores up to 20062007 In the year July 2007, one of the company of the family ie HDIL became a listed company. After getting listed, they cleared all their dues with the Bank. The funding requirements of HDIL became huge and after getting listed, they started operating with other banks also. The Bank approached and requested HDIL to continue banking with it as it started impacting the profitability of the bank as the huge portion of advances were repaid by the company. So, HDIL again started their operations with our bank after 5 to 6 months and they also expanded their operations to beyond Mumbai to the other parts of the country. They also became specialized in slum rehabilitation projects and were the pioneers of the TDR in India.
Owing to our limitation of funding, they started banking with other bank to fulfill their growing funds requirements. Till 2008, bank continued to earn high interest from the funding from the business of Wadhwan family. Meanwhile we also merged 3 weak banks with our banks in the year 2008, 2009 and 2010 (named as Kolhapur Janata Sahakari bank Ltd. (Kolhapur), Jaishivrai Sahakari bank Ltd (Nanded) and Chetna Sahakari Bank (Karnataka).
In the year 20112012 the Government of Maharashtra came up with the major policy change regarding sale of TDR which was the strong business for the HDIL group. And at the same time the company’s major project of slum rehabilitation in the area near the Mumbai airport got cancelled due to change in the policy and the subsequent change in the government. In the year 2013 the project near the airport got terminated due to non-completion Though the company submitted that it was due to change in policy, the Government did not take cognizance of issue.
This was the time the group started facing liquidity crunch and they also started defaulting with all dues of all banks. However, they were still managing to partly pay the overdue of the banks. Since they were in defaults, they could not raise fresh capital or loan and their project also got stalled. Slowly collections got reduced therefore some of the accounts became stagnant. As the loans outstandings were huge and if these were classified as NPA it would have affected the profitability of the bank and the bank would have faced regulatory action from RBI also. Further this would have created reputation risk for the bank. As the HDIL group had good record of clearing their dues with certain delays we continued to report all the accounts as standard accounts.
Though some of the accounts were not performing well, it was not brought into notice of the board. The subsequent overdue of various loans were also not reported to the board. They were running many projects and were also in the business of taking over of the companies many a time they we opened separate accounts for different projects.
The concealment of information from board, auditors and regulators was due to the fear of reputational loss. The volume in the accounts were huge as the major business of the company were to acquire the small pieces of land from the farmers and then developing the land and creating infrastructure after getting the necessary approvals from the authorities.
The concealment of the information was done from the board The concealment of the information was done from the board due to fear of the reputation of the company as the cheques were of small amount. Till 2019 some of the accounts were reported and shown but many legacy accounts were not reported to the Board.
Since the bank was growing, the Statutory auditors, due to their time constraints, were checking only the incremental advances and not the entire operations in all the accounts. They validated the incremental loans and advances and scrutinized the accounts which were shown by us.
In the RBI Inspection prior to 2015 officers, use to check mostly top few borrower accounts reported by the bank branchwise, therefore, these account did not come into picture and it was around 2017 onwards when the RBI started asking for indent for the Advances master. The stressed legacy accounts belonging to this group were replaced with dummy accounts to match the outstanding balances in the balance-sheet. As the loans were mentioned as loans against deposits and were of lower amounts they were never checked by RBI.
With regards to OSS 5 part A segment wise advances analysis- the amount of big borrowers was added under non-priority sub-category all others. OSS 5 part B Industry wise exposure it was included under Miscellaneous Industries
Some of the large accounts were not reported to RBI from 2008 because of fear of reputational risk. The size of the bank in 2011 was around 57 branches, with Deposits of Rs. 2824 Cr and Advances of Rs.2000 Cr. The exposure to HDIL group then was Rs. 1026 Cr. Further, had we classified them as non performing asset, we would have to stop charging interest on these accounts and we could have made losses. The growth path of the bank would have got hampered. The bank had created a name for itself in the market. The HDIL group always promised to clear the dues and also gave adequate security to hack their loans. We are still very optimistic on the repayment plan of the HDIL group.
Following road map was planned for the action implementation
1) We have already closed the fixed deposit amounting to Rs. 158.23 crores of the HDIL group and adjusted towards their loan accounts.
2) Bank had started creating second charge on the securities mortgaged with other banks where the outstanding of the other banks was less than the mortgaged property value.
3) We met the borrower on 21 September 2019 and they have offered immediately to create bank’s charge on assets worth Rs.3500 crores which were already mortgaged with some other banks but the dues of other banks was only Rs.500 Crores. This will further increase the backup of the security to cover the Principal and interest dues of our bank.
4) The company is at the finalised an agreement for joint development with Poddar group for one project where in they can generate approx. Rs. 100 crores. The company namely Excel Arcade Pvt. Ltd. will be sold to the Poddar group and the liquidation amount will be used for repayment of dues of our bank.
5) The Bank had issued pay-orders to the court for retrieval from NCLT filed by various banks.
6) Bank has made payments to various bank to get the additional securities to backup your outstanding.
7) Every year during the core of RBI inspection we undergo into a lot of stress due to concealment of information from RBI. It was worrying each of us. We 6 members of staff, who were fully aware of the situation decided to bring it into the notice of highest authority in Reserve Bank of India. On 18th September 2019 we tried to get appointment with Deputy Governor. Since he was busy we got the appointment of Executive Director Dr. Rabi N. Mishra. We met the Executive Director and apprised him of our position and requested to give some time to save the bank.
I submit that all the decisions for granting of overdrawals to these accounts was as per my instructions. The executive has no role in allowing overdrawal they were doing it as per my instructions as they had lot of faith in me and as a part of the system. Even in case of reporting the staff and executive had done in good faith.