PMC Bank Breached Exposure Limits For These Two Borrowers

Punjab And Maharashtra Cooperative Bank, a lender that was recently put under restrictions by the Reserve Bank of India, breached exposure norms while dealing with some of its large corporate borrowers, the bank’s former managing director K Joy Thomas said on Friday, while speaking in his individual capacity.

PMC Bank is currently under the charge of an administrator after the RBI superseded the bank’s board and removed the management earlier this week.

Thomas admitted that the lender had suppressed information regarding PMC Bank’s loan exposures to entities linked to Housing Development & Infrastructure Ltd. and its promoters. The cooperative bank’s total exposure to HDIL stood at around Rs 2,500 crore, Thomas said. These loans have been extended over a 5-6 year period.

As on March 31, the cooperative bank had disclosed Rs 8,400 crore worth of loans and advances on its books. As such, the exposure to entities linked to the HDIL Group accounts for about a third of the bank’s total loan book.

Among companies related to the HDIL Group, the bank had loaned Rs 75 crore to Guruashish Construction Pvt Ltd and Rs 120 crore to HDIL Budget Home Spaces Pvt Ltd, shows data on the company’s loan book accessed by BloombergQuint. The data was sourced from financial data website Zauba Corp and verified from the Ministry of Corporate Affairs database.

PMC Bank also took loan exposures to Sapphire Land Development Pvt Ltd and Somerset Construction Pvt Ltd, where HDIL’s assets were pledged as securities. The effective ownership of these two companies could not be established, since they are owned by multiple firms, as per MCA data.

Thomas and other senior members of PMC Bank approached the RBI to help find a solution to the undisclosed and stressed exposures. However, the regulator chose to put it under restrictions, Thomas claimed at a press conference.

The Rs 2,500 crore exposure to HDIL includes about Rs 95 crore that the bank paid to Bank of India last month on behalf of the construction company, Thomas said. This was done to avoid insolvency proceedings against HDIL, initiated by Bank of India, he added. An insolvency proceeding, would have delayed enforcement of securities held by PMC Bank, Thomas said.

“The only wrong thing we did was breach exposure norms. But our exposure is covered by a lot of securities, which will ensure good recoveries,” he said, speaking about the bank’s HDIL exposure. According to Thomas, the bank’s board was also not aware of these loans extended to the group. The reason the bank’s management did not disclose these loans nor classify them as bad loans was primarily to not “hinder the bank’s growth”, he said.

A breach of exposure norms and mis-reporting of loans are serious violations of the RBI’s prevailing regulations.

The RBI, while imposing restrictions on the bank, had said that the directions were necessitated “on account of major financial irregularities, failure of internal control and systems of the bank and wrong/under-reporting of its exposures.”

An email sent to Sarang Wadhawan, vice chairman and managing director, HDIL Group on Friday were not answered.

More Than Just HDIL?

While loans to HDIL were disclosed during the press briefing, data on the company’s loan book shows large exposures to at least one other corporate.

PMC Bank had loans worth at least Rs 565 crore outstanding to the Uttam Galva Group, shows the data.

Even this exposure is in excess of the limits set by the RBI.

As per exposure norms laid down by the RBI in 2013, an urban cooperative bank can lend up to 15 percent of its total capital to a single borrower and 40 percent to a group. The urban cooperative bank’s total capital funds as on March 31 stood at Rs 1055 crore.

Like in the case of HDIL, the exposure to the Uttam Galva group was split across entities. The bank had given a loan worth Rs 100 crore to Shree Uttam Steel And Power Ltd. and Rs 115 crore to Indrajit Power Pvt. Ltd. PMC Bank also had loan exposure to companies like Barclay Exports Pvt. Ltd, Kredence Multi Trading Ltd, Evergreen Tradeplace Ltd. and FirstIndia Infrastructure Pvt. Ltd, where the Miglani family members hold considerable stake.

A spokesperson for Uttam Galva denied there are any irregularities in their accounts with PMC. “There is no default of Uttam Galva  Steels limited  or any promoter company with PMC bank , exposure to any promoter trading company is as per norms and fully collaterised. Our total group exposure is below 300 crores and will be paid on due dates of maturity,” a spokesperson said in response to an email query.

Thomas declined to answer queries about the Uttam Galva group companies at the press conference.

Pain For Depositors

The troubles brought on by the cooperative bank’s loan exposures to corporate entities has resulted in its depositors coming under significant stress.

On September 24, the banking regulator said that PMC Bank depositors cannot withdraw more than Rs 1,000 from their bank accounts for a six month period. The RBI eased the withdrawal limit to Rs 10,000 on Thursday.

Thomas, while addressing the press, said that the regulator is considering raising this limit to Rs 1 lakh.

The RBI’s decision seemed hasty and if resolution of the issue had been left to the bank’s management, a less disruptive route could have been taken, Thomas said.

An email sent to RBI on Friday evening was not immediately answered. The regulator typically places a bank under restrictions in order to protect the interests of depositors.

This report has been updated to include Uttam Galva’s response to BloombergQuint queries.