Established in 1984, Punjab & Maharashtra Co-Operative (PMC) Bank is a scheduled urban co-operative bank with a presence in the states of Maharashtra, Gujarat, Delhi, Goa, Karnataka, Madhya Pradesh and Andhra Pradesh. A few weeks back, the bank’s loyal depositors received the shock of their lives when they woke up to the news that there were restrictions imposed on their withdrawal limits. The reason, they heard, was a bank fraud in which the PMC bank was embroiled.
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Fixed deposit holders and account holders with the PMC bank are still reeling from the effects of the fraud, which, it appears, has been in the making for years.
The PMC scam: an overview
In September 2019, the PMC bank was exposed as the hotbed of a bank fraud worth around Rs. 4,355 crores. Consequently, the RBI imposed several crippling restrictions on the bank, effectively rendering it unable to do any business for a period of six months. Additionally, it also capped the withdrawal limit of the depositors to Rs. 1,000.
The PMC scam involved several top bank officials, who colluded with a debt-ridden company, Housing Development and Infrastructure Limited, to disburse high-value loans. These loans were wrongly reported in the bank’s books of accounts, so the high-value amounts disbursed to HDIL were conveniently masked and hidden from the RBI’s line of vision.
The details of the PMC bank fraud
PMC bank fraud did not happen overnight. Shockingly, it has been in the works for over six years now. The bank gave out loans amounting to Rs. 4,355 crores to HDIL through 10 massive loan accounts, with an average loan size of around Rs. 435 crores. As per regulations, these loans were correctly entered in the bank’s books of accounts under the names of HDIL and the other related entities or persons to whom the money was actually lent. Up until this point, the bank appears to have toed the line and followed the RBI’s regulations and the requirements of the Companies Act, 2013.
However, in the advanced master indent that the bank sent to the RBI as part of disclosure norms, it presented a very different picture. The bank gave the RBI the impression that a total of around Rs. 4,355 crores had been lent out to around 21,049 smaller accounts (instead of the actual 10 massive loan accounts). Many of these fictitious accounts were in the names of deceased people.
Now, since the report sent to the RBI by the PMC bank did not reflect the true state of the financials, it resulted in under-reporting of the bank’s non-performing assets (NPAs). To offer more perspective, only around 3.76% of bad loans were reported to the RBI. The reality was far more sinister. The total of the loans disbursed to HDIL accounts amounted to Rs. 6,500 crores, which made up around 73% of the bank’s loan book.
The impact of the PMC scam on the bank’s depositors
There is no doubt that this bank fraud has rattled PMC bank’s customers and holders of fixed deposits. Due to the withdrawal restrictions in place, depositors have been left out in the lurch with very little hope in sight.
Nevertheless, taking cognizance of the situation, the RBI increased the withdrawal limit from Rs. 1,000 to Rs. 10,000, and subsequently to Rs. 25,000. More recently, the withdrawal limit has been raised to Rs. 40,000. Even with this move, it is highly unlikely to provide any recourse to the depositors, as all they can do right now is to play the waiting game. In the event of the bank going bust, fixed deposits and bank balances of customers are covered by up to only Rs. 1 lakh.
This incident is the latest in a string of bank frauds that has plagued the country for quite sometime now. If you’d like to put your money in a safer investment vehicle, you could always head to Finserv MARKETS and look up the attractive terms offered for booking fixed deposits or for investing in mutual funds. Tools like the FD calculator on the online portal set up by Finserv MARKETS can help you quickly calculate how your money can grow. You can even use the filters provided on the portal to decide upon the best mutual funds to meet your financial goals.
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