Analysis: PMC bank issue

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Punjab Maharashtra Cooperative Bank is a Scheduled Commercial bank with branches in 6 states in India. This bank was established on February 13, 1984 as a single branch Bank.

In a span of 35 years, the Bank has expanded to a large network of 137 branches across six states. This bank was a Cooperative Bank since its establishment and it was only in the year 2000 that it got the status of a Scheduled Commercial Bank by the Reserve Bank of India.

The issue started when the higher management of the PMC bank gave huge loan to the Housing Development and Infrastructure Ltd (HDIL) and its group entities. In this case, transfer of 70% of the total credit facilities of the PMC bank to HDIL and its associated companies was done.

The total amount of the bank fraud was Rs 4,355 crores as the bank’s management was accused of concealing non-performing assets and disbursing loans leading to a loss of at least Rs 4,355.46 crores. Now the total non-performing assets of the bank has grown to 73%.

The PMC bank allegedly favored the promoters of Housing Development and Infrastructure Ltd (HDIL) and allowed them to operate password protected ‘masked accounts.

It was found that 21,000 bogus accounts were opened to disburse loans to HDIL to an extent of Rs 6,500 crore. Moreover, the bank’s system was also tampered to conceal the loan accounts.

The fraud was exposed by a group of women working in the credit department of the bank, the RBI was informed about the ghost accounts. As soon as this news came out, the customers flooded the doors of the bank to withdraw their money but were not allowed to do so.

The depositors could withdraw a mere Rs1,000 every six months, as per an initial notice of the RBI. Then the said limit was raised to Rs 10,000 and then again to Rs 25,000. Now, the RBI has raised the withdrawal limit and capped it at Rs 40,000 once every six months.

Public reaction and allegations:

It is sad to see that people are not able to withdraw their hard-earned money. Various protests have been staged relating to this fraud as people are furious. Many protestors have asked the Government to arrest the officials of RBI as they were auditing regularly and the scam has been happening for the past 10 months.

Kurjot Gill, an account holder said “we want our money back, this is the fight of financial freedom. Government should take action.” Jaimal Singh Pawar sat on a hunger strike demanding justice for his own money, he said “I am sitting on a hunger strike and will not end it till the Government helps us to recover our money.”

6 people have died due to unavailability of funds in the hands of the people for their needs.

Actions taken/promised by government:

In the second week of October, Finance Minister Nirmala Sitharaman promised to bring in legislative changes for securing the depositors’ interests.

She said that, Deposit Insurance & Credit Guarantee Corporation (DICGC) insures each depositor in a bank up to a maximum of Rs 1 lakh for both principal and interest as on the date of liquidation/cancellation of the affected bank’s license or from the date of amalgamation/merger.

She further said that she had a discussion with the RBI Governor that if deposit guarantee of Rs 1 lakh can be released instantaneously for the benefit of the customers.

Till Now the Enforcement Directorate (ED) has sealed the assets of Rs 3,500 crores of the HDIL group and the HDIL chief Rakesh Wadhawan and his son Sarang Wadhawan have been arrested by the Mumbai Police. Additionally, 202 people have been arrested for being involved in the case, including the former Managing Director, former Chairman of the bank.Further planning is also being carried out to recover the rest of the money.

Lessons to be learnt from this scandal:

Avoid cooperative banks for keeping deposits:

Avoid keeping money in co-operative banks. Over the years, we have seen many cooperative banks facing financial difficulties. Examples include Kapol Cooperative Bank, Rupee Cooperative Bank, The Needs of Life Cooperative Bank etc.

Deposits are insured up to Rs 1 lakh per account:

After the PMC Bank crisis, many people assumed that their deposits are safe. If your bank deposit is more than Rs 1 lakh, you will get protection up to Rs 1 lakh only. For example, if you have 15 lakhs in your bank account, if a scam takes place you will get only 1 lakh out of your total amount 15 lakhs.

Look to whom your bank lends money to:

As a financial depositor, you may prefer keeping money in the bank and stop worrying about it later. But that can be a mistake. Smaller banks can lend money to questionable borrowers or lend a huge amount of money to one borrower.


The financial sector is facing a tough time, and these scams should be resolved. Now, it is need of the hour that the Central Government takes strict actions to prevent such banking frauds. One of the most important measures would be to restrict the political intervention in the functioning of the Indian banks and keeping a strict check on Auditing.

With the increase in the number of deaths and continuing protests, the pressure is increasing on the HDIL, the PMC Bank and the Government to recover the money people have lost.

–This article is brought to you in collaboration with Yash Gangwani from  Maharaja Agrasen Institute of Management Studies, New Delhi.

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