‘PMC Bank should be merged with SBI to protect account holders’

Vishwas Utagi is a well-known activist who fights for the welfare of bank depositors and is an expert in the banking sector. He is currently the convenor of PMC Bank Depositors Association. He is also the General Secretary of Maharashtra State Bank Employees Federation and the Vice-President of All India Bank Employees Association. While holding RBI and BJP responsible for the PMC Bank scam, he suggested PMC should be merged with the State Bank of India (SBI) to protect the entire deposits of the account holders. He had a detailed interaction with the Free Press Journal's Political Editor Pramod Chunchuwar.

Edited excerpts:

What are your observations about the Punjab and Maharashtra Cooperative Bank?

The sole regulator of cooperative banks since 2001 is the Reserve Bank of India (RBI). Till 2001, cooperative banks in Maharashtra were under the dual control of the Maharashtra government and RBI. But after 2001, as per a central legislation, RBI became the sole regulator of cooperative banks in India. In March 2019, RBI again gave "A grade" to PMC Bank. This bank has the A grade from many years.

The bank was the fourth largest co-operative bank in India. The bank was having around Rs 19,000 crore balance, Rs 12,000 crore in deposits and Rs 8,800 crore in advances, as per the balance sheet checked by RBI in March 2019. All parameters were in the limit.

The gross NPA was 3.5 per cent, net NPA was 2.2 per cent and the profit was Rs 100 crore. Then how did it fail in just months? RBI should answer this!

It is now being said that loans given to HDIL are the main cause. What is your opinion?

HDIL is the company that was patronised by PMC Bank. I am carefully using the word patronising. The Wadhwan family and HDIL are associated with the PMC Bank for a very long period. In 1987, they saved the bank from a financial crisis.

This fact cannot be ignored that they once saved the bank. PMC Bank started giving loans to HDIL from 2008 onwards. Then HDIL slowly took control of the bank through the board of directors. Waryam Singh who was a director of the bank was later appointed as the bank's chairman.

Bank MD Joy Thomas too joined these directors in this financial scam. He hid the fact from RBI that HDIL has defaulted on Rs 2,500 crore. After RBI's action, Thomas in a press conference admitted that HDIL's bad assets were Rs 2,500 crore.

This fact must have been revealed to RBI after a whistle-blower Mattu alerted RBI about this hidden NPA of HDIL. RBI's auditors must have sought an explanation from the bank, which forced Thomas to show the entries regarding this NPA.

RBI then asked the bank to make a provision of Rs 2,500 crore or face its action under section 35(A). The loans given to HDIL, especially during 2008-19, were turned into NPAs. 

Don't you think RBI is also responsible and answerable for this scam? It may be said that RBI officers were in connivance with these bank directors and officials?

Yes. We think RBI is more guilty than the bank and its directors or officials. RBI cannot escape their responsibility. It is their sole responsibility to do audit and supervision of these banks.

Why did not RBI do the concurrent audit and IT audit of this bank? If the loans given from 2008 have become NPAs, RBI should have noticed this. Why was RBI giving A grade to this bank for a long time? A honest audit of PMC Bank by RBI could have saved the depositors money.

After RBI was alerted by a whistle-blower, it noticed this scam. What type of audit were they doing since 2001? As per the NCLT code, the value of the assets under liquidation has reduced to 75 per cent of their original claimed cost. Money was lent to HDIL and their dummy companies through 21,000 dummy accounts.

MD Thomas along with his chosen six associates opened these dummy accounts. How were KYC of these accounts approved? If we take into consideration these dummy accounts, the total money siphoned off was Rs 4,252 crore. This scam is also a fit case of money laundering and thus ED comes into the picture for this.

We are requesting the government agencies to arrest the concerned RBI officials who connived with PMC Bank and allowed them to hide the NPAs. We are filing a petition for this in the Bombay High Court.

Do you see any political link or pressure in this scam?

We feel the RBI is acting politically. If PMC Bank is not having any liquidity, how was the money withdrawal limit increased within a few days from Rs 1,000 to Rs 25,000.

This increase of limit is good for small depositors but where has this money suddenly come from? Did the bank sell assets of the defaulters or how is the bank managing to give this amount? It means that RBI is violating its own rules and regulations and is acting politically due to fear. PMC has directors related mainly with the BJP.

The directors are largely builders and businessmen who are associated with the BJP. The political party has also appointed Mangal Prabhat Lodha as its Mumbai president. This clearly shows that the builder lobby is supported by the BJP. Thus, we believe the RBI and BJP are responsible for the PMC scam.

But RBI's role is to protect investors and depositors. The action against this bank may erode depositors' trust in the co-operative banking system?

Yes. RBI is expected to protect depositors. But in this case, they failed like they did in the Rupee Bank case too. RBI instead of protecting the co-operative sector banks, wants to kill these banks.

They want only the private banks to survive in the country. The policy of RBI is not to save the co-operatives. In the name of governance, they are killing the banks. In the name of punishing corrupt people in co-operative banks, RBI is killing cooperative banks.

Instead of weeding out the corruption, they are destroying the banks. Barring the Maharashtra State Cooperative Bank, RBI has not revived any co-operative bank. RBI wants to shrink the co-operative sector and privatise these banks.

What should the government do to protect investors?

One should first understand PMC Bank. The depositors are mainly from the Sikh community. This community is a very hard working one and they have deposited their hard-earned money in this bank.

They are drivers, workers, employed people, housewives and gurudwaras from the Sikh community. All are now fighting to get their money back. These people are bound to vote against the BJP as it has hurt the trust of the Sikh community.

Since the regulator has failed to check the corruption and revive the bank, the central government should do an out-of-box thinking. Now the finance minister should come forward and announce that PMC will be merged with SBI and all deposits should be protected. It will be a big slap for RBI but this will save total deposits of depositors.

This has happened in the past. The Memon Cooperative Bank was merged with Bank of Baroda in 2009. Bank of Karad was liquidated due to the Harshad Mehta stocks scam and then merged with Bank of India in 1993.

Currently, bank deposits are covered with a Rs 1 lakh guarantee by the government. In PMC's case, even to get this Rs 1 lakh back, depositors will have to wait for 20-25 years. So, we demand that like an investment in LIC, all depositors should get 100 per cent sovereign guarantee on their deposits.

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