PMC Bank – another saga of fraud and greed
The PMC Bank saga is another instance of how public trust in banks wasmanipulated and misused to feed the greed of a few individuals. The loss to the nation is more than the money, it is also a dent on the trust that can be reposed in thesystem and the so called regulators of the system
The Punjab Maharashtra Co-OpBank Ltd. is in the news for all thewrong reasons-for giving fraudulent loans to the Housing Development and Infrastructure Ltd.(HDIL) and its related entities to the tune of Rs.6226 crores, which roughly amounted to 73% of its total assets. The loans were given violating banking norms, knowing fully well that they were bad loans and not recoverable. Bogus customer accounts were created by the bank to hide illegal loans given to HDIL.Both the statutory auditor and the regulatory RBI failed to unveil the smokescreen created to hide the transactions.
The culprits
The Economic Offences Wing of the Maharashtra police have arrested the CEO and chairman of the bank along with the owners of HDIL.The ED has also stepped in for enquiry and for seizing properties belonging to the owners of HDIL which were created out of the money received from the PMC Bank.The owners of HDIL,the father and son duo-Rakesh Wadhawan and Sarang Wadhawan were the chairman and managing director of the company.Waryam Singh,the chairman of PMC Bank had some pecuniary interest in HDIL and was also on its board, before becoming the chairman.It has been reported that Thomas,the arrested CEO who extended the fraudulent loans to HDIL was deeply under pressure both from his chairman and the Wadhawans.-
To begin with,the PMC Bank was among the top ten urban co-operative scheduled banks of the country with 137 branches spread over seven states. Now the depositors are facing problems,as the RBI has capped the withdrawal limit to Rs.25,000 from Rs.1000, which was announced earlier.
On the other hand, HDIL,a Mumbai based construction company,was once considered the third largest realty developer in the country.It had specialised in slum rehabilitation development though it also had focussed on mainstream residential and commercial development.
King-size lifestyle
The Wadhawans are known to be living like kings,and to some extent, they have been giving competition to Vijay Mallya,who was earlier known as the ‘King of good times’.HDIL was already under the proceedings before NCLT under IBC (Insolvency and Bankruptcy Code) as one of the nationalised bank lenders had got these proceedings initiated.The Wadhawans’ issue has now opened the Pandora’s box both for HDIL and PMC Bank.
The luxurious lifestyle of the Wadhawans is coming to light every day as the probe proceedings of the ED and Maharashtra Police are progressing.Every day there is a new detection of assets of the Wadhawans which in all probability were created out of the laundered money and there have been also quick attachments of them under PMLA by the ED.
Assets unravelled
To have a glimpse of the assets of the Wadhawans,they have two personal aircraft,over a dozen high-end luxury cars like Rolls Royce,Bentley, Lamborghini,Mercedes,Audi,Land Rover etc.,one super luxury yacht and speed boats,etc.The Wadhawans have a mansion at Bandra (W) in Mumbai and a luxurious 22-roomed farmhouse spread over 2.5 acres at Alibaug. The farmhouse is actually a beach house,accessible by personal speed boat from the Gateway of India. The ED has also discovered a five-acre mansion in the suburb of Mumbai together with a land bank of over 2200 acres in the vicinity of Vasai-Palghar suburbs.
The Wadhawans once owned about 100 race horses maintained and trained at Mahalaxmi racecourse.Once their horse ‘Moonlight Romance’had also won the derby (in 2011) and incidentally the PMC Bank chairman was the co-owner of this horse with the Wadhawans.
Favourite of the favoured
Sarang Wadhawan has been the darling of Bollywood and of the high-end social circuit of Mumbai.He was known for throwing parties where the entire glamour world participated.The super yacht used to be the venue of many such parties.Once a circus group was invited from China to celebrate Sarang Wadhawan’s son’s birthday,and many guests from Bollywood along with their children had participated.
The Wadhawans were also known to love diamonds and just one lot of jewellery attached so far is worth Rs.60 crores.The Wadhawans also sponsored big time fashion events.It was discovered that they own properties in Dubai,US and Canada. Whether as a security threat or social upmanship,the Wadhawans kept foreign bodyguards.They believed in having a luxurious lifestyle but the only problem was the source of money.
Violated trust
The Wadhawans and the PMC Bank saga is the story of fraud and greed. Like Jonathan Gash said,‘Fraud is the daughter of Greed’.A bank is a place where depositors keep their money in safe custody and to earn some interest on it.The majority of these depositors are from the middle class and even from the weaker strata of the society.On the other hand,there is a class of people known as borrowers,who have the vision to spend but are short of cash. Banks give money to these borrowers from the fund kept by the depositors.There is nothing wrong,as a bank is created for such a purpose and thus to some extent, a bank works to establish a symbiotic relationship between depositors and borrowers.This fair game by the bank is a clean economic process which is essential for boosting the economy of any country.
The problem starts when there is not enough off-take of loans by the borrowers or when there is not enough money from the depositors.But the worst problem which is a cardinal sin is when the trust of safe keeping of depositors’money is betrayed by the bank by dishonest and fraudulent lending. This way the greed of the lenders and borrowers,working in unison,robs the hard earned savings of the depositors.In such a situation,the bank will capsize as it loses the very reason for its existence.This is what happened in the case of PMC Bank.The greed of the borrowers-the Wadhawans,supported by the greed and helping hands of the arrested chairman of the bank worked together to bring down a good bank,and the depositors to the footpath,along with it.
‘As per an RBI report,the Indian banking system detected frauds amounting to Rs 71,500 crores in FY 2018-2019.We have a huge pileup of NPAs and while a major part can be attributed to genuine business loss,a significant portion is due to wrong loans and bad intentions of the borrowers’
Too much fraud
As per an RBI report,the Indian banking system detected frauds amounting to Rs.71,500 crores in FY 2018-2019.We have a huge pileup of NPAs and while a major part can be attributed to genuine business loss,a significant portion is due to wrong loans and bad intentions of the borrowers.
It is not banks alone,our financial entities keep on getting wrecked almost on a regular basis,which hurts our economy.Recently,we saw the case of the most famous NBFC and IL&FS virtually collapsing due to greed and mismanagement.company were caught damaging the company because of their greed.This shadow banking entity which was a pioneer in financing big infrastructure projects had to abandon a good job and it resulted in a vicious circle that is retarding our growing economy.The financial system is always the centre stage around which any country’seconomy revolves and if it becomes weak then the entire country suffers.
Regulatory failure
Who is to be blamed for the loot of depositors’money or the loot of taxpayers'money?A quick answer to this question is that it is the failure of the government.But can we absolve ourselves?Can we absolve the failure of the regulatory authorities like the RBI?Can the statutory auditors of the banks and other financial entities be blamed for the failure to detect the problem and nip it in the bud?
Scams take place due to greed. Some of us can be borrowers and when our greed supersedes our normal business conduct, we trigger a scam and in the process,we secure the services of some greedy and corrupt people of those entities.In the case of PMC Bank,its arrested chairman was the collaborator to rob the bank by the Wadhawans and the weak arrested CEO became a meek tool.
In the case of the Nirav Modi scam,a deputy manager of the Punjab National Bank became the greedy associate.For some crumbs,this bank official helped Nirav Modi loot the bank in a big way-the looted money was about Rs.14,000 crores.In these loot transactions,the apparentculprits were a part of ourselves.
The RBI is the regulator and watchdog of banks and if robberies take place in banks,then it may also mean that the regulatory mechanism of the RBI requires to be reviewed and strengthened.The statutory auditors are highly educated and skilled to cross-check the accounts of the financial entities and they cannot escape the blame of negligence when they fail to unveil such frauds.
Make it costly to defraud
It is the responsibility of the government to make stringent rules as a deterrent against white-collar crimes.The guilty must be jailed and we must come to know that the cost of fraud and greed is too high to be indulged in.Our judicial process also requires some revamp as the punishment for white-collar crimes should be quick,knowing fully well that justice delayed is justice denied. We as a society,should also be vigilant and avoid respecting such culprits. We should not get blinded by the radiance of diamonds while choosing our friends and bestowing social respect on them.We should give respect to the inner quality of the people and not to their criminal conspicuous consumption.The looters do not deserve any respect.