PMC bank: The story of a scam foretold

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This is not the first time irregularities in Punjab Maharashtra Cooperative (PMC) Bank were brought to the Reserve Bank of India’s notice with no action taken. Founder-Chairman Sardar Gurucharan Kochhar had flagged irregularities running to over a crore in 1993, but his concerns were swept under the carpet.

Had RBI taken stringent action then, a strong message would have gone to bank staff and we wouldn’t have this scam today,” said Charan Singh, 74, a founder-director. “In the complaint, Kochhar (who was not the chairman in 1993) had stated that for nearly two years, he had asked the new board of directors to furnish details of balances in current, saving and loan accounts, but the then General Manager (now disgraced MD Joy Thomas) delayed disclosing the details.”

Kochhar’s son Amarjit, 57, said: “Only because that case was kept under wraps, the board of directors dared commit financial irregularities to the tune of over Rs 6,500 crore today.” Kochhar had observed that the Bank violated a series of byelaws, RBI guidelines and the Maharashtra State Co-operative Society Act in disbursing funds over Rs 1 crore.

Amarjeet Singh with the photo of his father, the late Sardar Gurucharan Singh
Amarjeet Singh with the photo of his father, the late Sardar Gurucharan Singh

Thomas admitted to Kochhar that there were defaults and promised to recover the amount (granted without the approval of the Board of Directors) within three months. Interestingly, even now, Thomas, in his confessional statement admitted that he was responsible for sanctioning nearly 73 per cent of the bank’s total loans — over Rs 6,500 crore — to HDIL without approvals. And this, according to both Singh and Amarjit, was a deliberate attempt by the present chairman and board of directors to make Thomas the scapegoat. Even in 1993, Thomas took the blame for the acts of the then chairman and board of directors, they said.

“While it is no excuse for him, Thomas is surely being forced to own up in the current scam,” said Singh. “He was the GM since 1987 and he grew within the bank. Directors and account holders always trusted him as their own family member.” Eventually, the board handed over the required information to Kochhar in May 4, 1993. A recovery committee was formed and Kochhar submitted a detailed report on September 11, 1993, to the chairman and board. The chairman promised to take stern action against executive staff and directors involved, but did nothing.

Amarjeet Singh Kochhar and Charan Singh
Amarjeet Singh Kochhar and Charan Singh

Finally, Kochhar requested government auditors to verify his claims (See box) and wanted to move court for criminal breach of trust against the directors and the executive staff. He also wanted the Bank to be prevented from incurring unusually heavy expenditures till the finalisation of his application. “But other than summons from the Crime Branch asking me to be present for recording my statement since I was also a signatory to the complaint, the police took no action,” said Amarjit.

Singh added, “Five senior Sikh community members of good standing intervened, and yet they managed to ensure that the matter was never brought to public notice. No account holder ever learnt of what happened.” Amarjit said the fact that Rs 20,000 was spent on ‘lunch’ with RBI auditors raises serious questions, especially since no action was taken. “Timely action then would have helped avert this major multi-crore scam,” he said. Singh ended on a hopeful note: “Even now, the bank is financially sound. Out of the 137 branches, it owns the property housing nearly 100 branches. If the RBI allows the Bank to operate under an administrator, it will bounce back to its glory.”

73
Per cent of total loans of PMC Bank sanctioned to HDIL (R6,500 cr) without permissions from board

Humble roots

Amarjit said Kochhar moved to Sion in 1962 after retiring from the IAF and started driving a taxi. “Getting bank loans was difficult for taxi drivers in those days,” he said. “Since my father was into social work, he approached UCO Bank in Worli, and convinced them to allot loans for 250 taxi drivers. When it came time to repay, only 10 defaulted.” Singh added that in 1983, Kochhar mooted the idea of starting a bank for taxi drivers and asked him to become a Director. “We got an RBI licence and started the bank on February 13, 1984,” said Singh. “On the very first day, we got deposits from gurudwaras, temples, and wealthy Sikhs, who deposited nearly Rs 40 lakh. It was a bank started by taxi drivers to help those from the lower strata to get financial aide and then gradually expanded over the years.”

What went wrong in 1993

According to Kochhar’s complaint:

a) Loans (of up to Rs 50 lakh) can only be given to members of the bank. GM Joy Thomas, without the board’s approval, or even an application, released disproportionate funds to an entity called M/s Atul Reality Pvt Ltd
b) Thomas also allowed heavy overdraft to several current accounts without permissions. Nine current account holders were given overdraft facilities ranging from Rs 46,000 to Rs 5,40,000. While in certain cases, the limit was against FDs, in reality, no FD receipts were pledged.
c) Vehicle, personal and other loan documents were incomplete or did not meet requisite conditions before disbursement. In most cases, installments up to 30 years were allowed to lapse and no legal action was taken for recovery.
d) Only four directors were given loans, and when other directors applied, they were kept pending; The GM also tried to regularise unsanctioned loans; the powers of the board were concentrated in hands of the Chairman and GM.
e) the GM was unable to explain unusual expenditure like Rs 20,259 on a ‘lunch with RBI auditors’ and Rs 6,973 for ‘purchase of articles for guests’. Besides, the total expenditure vis-à-vis the TDL and capital of the bank does not match.

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