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What is PMC Bank fraud and how it started

What was RBI’s orders w.r.t PMC Bank fraud ?

  • The RBI also put sanctions on the withdrawal of money from the bank to just Rs 1,000 per customer for the next six months, sending the small account holders into tizzy.
  • The limit was raised to Rs. 10,000 but angry customers have continued to protest.

Why FIR has been filed against Managing director?

  • Former Punjab and Maharashtra Co-operative Bank (PMC) Managing Director Joy Thomas has admitted to hoodwinking the auditors, bank’s board and the RBI for many years by concealing the default on loans to the tune of Rs. 6,500 crore taken by real estate firm Housing Development and Infrastructure Ltd (HDIL).
  • In a letter addressed to the Reserve Bank of India (RBI), Thomas has also explained the circumstances in which he took such decisions, besides taking full responsibility for his actions. He said that the bank is “still very optimistic on the repayment plan of the HDIL group”. He also presented a “roadmap” for recovering part of its dues and bringing the things back on the track.

Also Read : What is Monetary Policy 

What explanation is given by Managing director?

  • According to Thomas, he decided to conceal the information as disclosing it would have resulted in loss of reputation for the bank as well as for HDIL, which gave the majority of business to the bank, and had maintained a good track record of servicing their loans since 1990s.
  • Declaring the loans availed by HDIL – the firm started defaulting after it suffered a series of setbacks in the business — as NPAs would have caused further loss to the bank as it could no longer earn interest from those accounts.

What was the size of the Bank?

  • “Some of the large accounts were not reported to RBI because of fear of reputational risk. The size of the bank in 2011 was around 57 branches with deposits of Rs 2,824 crore and advances of Rs 2,000 crore.
  • The exposure to HDIL group then was Rs 1,026 crore,” Thomas wrote in the letter dated September 21, 2019.

Why has HDIL defaulted?

  • Between 2011 and 2013, the infrastructure developer suffered a series of setbacks as their projects and started facing liquidity crunch and started defaulting on “all dues of all banks”.
  • Thomas further explained: “As the loans outstanding 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…We continued to report all accounts as standard accounts.
  • Though some of the accounts were not performing well, it was not brought to the notice of the notice of the Board. The subsequent overdues of various loans were also not reported to the Board.”

Chiseled and Crafted by G.Rajput 

Current Affairs 2020

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