PMC Bank Crisis: RBI Files Reply In High Court, Seeks Dismissal Of Petitions
The Reserve Bank of India has sought dismissal of petitions filed by PMC Bank’s depositors in the Bombay High Court on the ground that it has already taken adequate steps to address the ongoing crisis, including issuance of a direction for forensic audit of the beleaguered bank.
The petitioners had moved the high court seeking directions for quashing of withdrawal limits imposed by the central bank and making special arrangements for depositors who seek to withdraw funds for emergency purposes.
Here are the key highlights of the RBI’s reply:
RBI Inspection Report: RBI conducted an investigation of PMC Bank in September. It found out that PMC Bank submitted fraudulently manipulated data to the central bank for inspection. However, information related to the undisclosed Housing Development & Infrastructure Ltd. accounts were not included in the submitted samples.
PMC Bank failed to monitor the end-use of funds due to conflict of interest of Waryam Singh, chairman of PMC Bank. It also sanctioned new loans to HDIL for closure of old non-performing accounts. Such activities were in violation of RBI’s circulars governing loans.
Conflict Of Interest: PMC had extended mortgage facilities to a HDIL group company in which Waryam Singh was a board director. As Waryam Singh chaired the meeting in which approval for loans was granted, such approval was in violation of RBI’s master circular on board of directors of urban co-operative banks. A director must disclose and not participate in meetings or proposals involving their interest.
Furthermore, the sanction of loans to HDIL was not mentioned in the board minutes of PMC Bank.
Erosion Of Bank’s Net Worth: RBI conducted an annual financial inspection of PMC Bank on Sept. 19. The inspection revealed that the bank’s net worth and deposit erosion was significant, and was attributable to the financial irregularities at the bank.
Tampering With Management Information System: PMC Bank assigned specific access codes to HDIL and its group entities, which enabled them to have a special access to the Core Banking System of the bank. The bank excluded the accounts belonging to HDIL from the scope of a computer script for generation of NPA Accounts.
Fictitious Profits: PMC Bank hid the deposit erosion by treating NPAs as standard accounts and fictitiously showing profits.
RBI’s Response: RBI has taken adequate actions pursuant to its powers under the Reserve Bank of India Act, 1932. It has directed a forensic audit of PMC Bank. The withdrawal limits have been gradually relaxed in response to the requirements of the deposit holders. The withdrawal ceiling is being changed in tandem with available liquidity of the bank. RBI has superseded PMC’s board and has appointed an administrator.
The directions issued by it were necessary to protect the deposit holders and further avoid damage. As this act was in public interest, any challenge to such direction by the petitioners must be set aside by the high court.