Betrayed by a bank: How the collapse of Punjab and Maharashtra Cooperative Bank left thousands in distress

The virtual collapse of Punjab and Maharashtra Cooperative Bank following grave financial irregularities has left thousands of depositors in distress. Gautam S. Mengle reports on the crisis and the ongoing fight for justice

November 16, 2019 12:15 am | Updated December 03, 2021 07:05 am IST

Mumbai, 01/10/2019: An account holders of the Punjab and Maharashtra cooprative Bank protest out side RBI at Bandra Kurla complex in Mumbai on Tuesday.  Photo: Vijay Bate

Mumbai, 01/10/2019: An account holders of the Punjab and Maharashtra cooprative Bank protest out side RBI at Bandra Kurla complex in Mumbai on Tuesday. Photo: Vijay Bate

It was late September when Andrew Lobo, 71, was brought home from a hospital in Mumbai after undergoing treatment for lung infection. Andrew had no reason to be relieved, however. He had come home to the devastating news that Punjab and Maharashtra Cooperative (PMC) Bank , where he had an account, had been placed under ‘directions’ of the Reserve Bank of India (RBI) for six months, after irregularities had been found in lending. This meant that the RBI was practically taking over the bank’s operations. Crucially, it meant that customers like Andrew could withdraw only up to ₹1,000 of the total balance in any account they had in the bank.

The infection had already weakened Andrew’s lungs; he needed oxygen machines to breathe. While his family had managed to pay for his treatment, they had been relying on four fixed deposits in PMC Bank to buy the oxygen machines needed to pull him through. Each of the machines cost ₹49,000. With no access to the fixed deposits, Andrew could not recuperate. On October 31, he became the seventh account holder of PMC Bank to lose his life.

“He had no children of his own. All of us — the children and grandchildren of his siblings — were his family,” said Chris Lobo, Andrew’s nephew. “It was hard to see him suffer. He was a strong and independent person. Just as we were talking about withdrawing the fixed deposits he had in PMC Bank, we saw the news that restrictions had been placed on the bank’s transactions. We had no other money to pay for the oxygen machines, because not just Andrew uncle, but even my father and all of our close friends had accounts in PMC,” he said.


The family said stress had caused Andrew’s health to deteriorate further. He couldn’t believe that he had no access to his own money. He refused to eat. Andrew’s family could only watch helplessly as he began wasting away in front of their eyes. “On October 31, all of a sudden, he started breathing heavily. Within five minutes he was gone. He had suffered a cardiac arrest,” Chris said.

MUMBAI, MAHARASHTRA, 16/10/2019: Depositors of the Punjab and Maharashtra Co-operative Bank (PMC) holds placards and photos of the two account holders who recently died during a protest over the Reserve Bank of India (RBI) curbs on the bank, outside court in Mumbai on October 16, 2019. 
Photo: Vivek Bendre

MUMBAI, MAHARASHTRA, 16/10/2019: Depositors of the Punjab and Maharashtra Co-operative Bank (PMC) holds placards and photos of the two account holders who recently died during a protest over the Reserve Bank of India (RBI) curbs on the bank, outside court in Mumbai on October 16, 2019. Photo: Vivek Bendre

Andrew was among the hundreds of depositors with PMC Bank who suddenly found themselves financially crippled, for no fault of theirs. Ironically, the same bank that customers had trusted to safeguard their money had become responsible for their misery.

Questionable dealings

PMC Bank is a multi-State scheduled urban cooperative bank with operations in Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh, and Madhya Pradesh. Started in 1984 as a single branch bank, it now has 137 branches.

It is alleged that PMC Bank had been hiding bad loans for a long time. Addressing a press conference soon after the RBI barred the bank from carrying out its routine transactions, the suspended Managing Director of PMC Bank , Joy Thomas, admitted that ₹2,500 crore of exposure to the Housing Development and Infrastructure Limited (HDIL) group had been left unnoticed in the annual audit of RBI. Thomas was arrested days after the press conference.

But how did the fraud come to the surface? The RBI said a complaint had been filed by PMC Bank against its officials and borrowers associated with the financial irregularities in the bank and manipulation of its books of accounts. Based on this, the Economic Offences Wing (EOW) of the Mumbai Police registered an FIR against officials of the bank as well as the HDIL group. Shortly thereafter, the Enforcement Directorate, too, registered a separate offence under the Prevention of Money Laundering Act, 2002.

The directions imposed by the RBI in September, under sub-section (1) of Section 35A of the Banking Regulation Act of 1949, also barred the bank from extending any new loans or making any investments, except in government securities. The bank was allowed to pay salaries to the staff and also rent, as well as renew term deposits of customers on maturity.

The restrictions triggered a huge public outcry as customers were unable to withdraw their savings. This prompted the RBI to gradually increase the withdrawal limits. On September 26, the deposit withdrawal limit was increased to ₹10,000, and on October 3, to ₹25,000. On October 14, the limit was raised to ₹40,000, and on November 5, further to ₹50,000. With withdrawal limits raised to ₹50,000, 78% of the depositors of the bank can now withdraw their entire account balance.


The move by RBI came as a surprise at first because PMC Bank’s financials were not in a bad shape. The bank has made a net profit of ₹99.69 crore in 2018-19 as compared to ₹100.90 crore in the previous year. The net non-performing asset ratio of the bank was 2.19% as of end-March 2019, which is much lower than many public sector banks. The deposit base of the bank was ₹11,617 crore as of end-March 2019, a growth of 17% a year, while advances growth was 13% to ₹8,383 crore. The police, too, has confirmed that the bank’s finances were not in troubled waters.

“Inquiries have revealed that there was a systematic effort to hide the loans advanced to HDIL in the bank’s annual audit. Crucial information about the borrowings of HDIL was kept suppressed, and falsified records were furnished to the RBI, with the Chairman, MD, and members of the loan committee all being involved. More people opened accounts with the bank as a rosy picture was projected. According to our investigations, HDIL’s accounts should have been declared as non-performing assets in 2013 itself,” an EOW officer, who is part of the investigation, said.

According to the EOW’s estimate based on the documents examined so far, the outstanding debt of HDIL stands at ₹4,635.62 crore as of August 2019.

Seizing assets

The EOW found 21,049 accounts that were in the name of fictitious parties, which had been used to replace the 44 actual accounts of the HDIL group in the bank’s records. The amount advanced to the HDIL group was spread out evenly in the fictitious accounts. This was why the outstanding balance on paper was significantly lower than the actual balance.

As with any economic offence where a large number of people have lost — or stand to lose — their money, one of the top priorities of the police was to try and ensure that the depositors were compensated.

From September 30, when the FIR was filed, to date, the EOW and the Enforcement Directorate have collectively attached assets belonging to Rakesh Kumar Wadhawan and his son Sarang Wadhawan, promoters of the HDIL group, worth ₹3,800 crore. The EOW has also filed an application in the court, seeking permission to release the assets, so that they can be auctioned off and the depositors compensated. The assets include large tracts of land in Thane district, high-end cars, speed boats, and a private aircraft. The auction is supposed to begin within 14 days of the assets being released, with the RBI overseeing the process of using the proceeds of the auction to reimburse the depositors.


The RBI has appointed an administrator along with the three-member advisory committee for speedier resolution. It was on the administrator’s recommendation that the plea seeking discharge of the assets was filed. The Wadhawans, through their lawyer, have already conveyed to the Enforcement Directorate, the EOW and the RBI that they have no objections to their assets being sold off to compensate the customers. “We urge the Enforcement Directorate and the EOW to take timely action by disposing of the assets to get the fair market value for the same. We further give our unconditional consent for the appropriation of the money received from the sale of these assets to be adjusted and appropriated towards the principal loan amount procured by us,” a letter signed by them on October 16, 2019, stated.

The customers, however, are not convinced. “What is the guarantee that someone will even buy the tainted assets?” Kishore Modsingh, a customer who banked with the PMC’s Santacruz branch, said. Modsingh is a cancer survivor who has been unemployed for the last two years due to his illness and was completely dependant on the money he had saved. His wife is a home-maker and his daughter, a student.

“All I had was the money I had deposited in PMC Bank. All my treatment was being funded by it, and my household expenses taken care of. Then, suddenly, the RBI placed restrictions on it and I am left with nothing. Every day is a struggle. Those responsible for our condition are getting home-cooked food with the court’s permission while in jail, and we are fighting for two square meals,” Modsingh said.

Eleven account holders with various branches of the bank have lost their lives due to various medical problems since the crisis broke. Apart from pacifying the depositors, whose anger mounted with every life lost, the police also had its hands full trying to dispel the rumours surrounding the issue.


One such instance was on October 11, when Nivedita Bijlani, who had over ₹1 crore in the bank, committed suicide in her Andheri residence. Thanks to WhatsApp, the news of her death went viral within an hour. The police found themselves besieged with phone calls, and senior police officers quickly passed down orders instructing the Versova police to get to the bottom of the matter. By evening, the police found that while she was indeed a PMC bank account holder, there was no evidence of her death being linked to the ongoing crisis.

“The deceased had been suffering from depression and was under treatment for the same. She had had two failed marriages and had recently moved back from the U.S. to stay with her father in Andheri after her second marriage,” Additional Commissioner of Police (West region) Manoj Kumar Sharma said.

Meanwhile, the EOW arrested Sarang and Rakesh Wadhawan; former chairman of PMC Bank, Waryam Singh; former PMC Bank Managing Director, Joy Thomas; and Director Surjit Singh Arora in connection with the case. All of them are in judicial custody and are lodged in the Arthur Road central jail.

With the process of compensating the depositors under way and some of the key accused under arrest, the next task for the EOW was to pinpoint culpability on the part of all the parties involved, including the auditors who conducted the audits.

Auditors face the music

The EOW identified two auditors, Jayesh Sanghani of Ashok Jayesh and Associates, and Ketan Lakdawala of Lakdawala and Co. Both were brought in for questioning on November 11 and grilled for hours. They were confronted with the financial records of the bank. The results of the sustained questioning yielded evidence of not only wilful negligence but also signs of a larger conspiracy.

The EOW first asked both of them to explain how the gross irregularities in HDIL’s loans alone had managed to slip through their scrutiny year after year. When they could not provide satisfactory explanations, they were placed under arrest.


“We also found that the two auditors had been appointed by Thomas and Singh on specific instructions from the Wadhawans. This is not only a contravention of the Multi-State Co-operative Societies Act, but also indicates that the whole fraud was planned well in advance by the Wadhawans and the PMC Bank officials. Both of them have been functioning as auditors of the bank for more than two decades,” the EOW officer said.

The EOW’s application seeking custody of Sanghani and Lakdawala also mentions that the agency has received information about both the auditors having had other business dealings with the Wadhawans in the past. The EOW is now trying to find evidence, either in the form of documents or testimony, to establish this beyond doubt. Both the auditors are also facing a separate inquiry by the Institute of Chartered Accountants. A third auditor, Anita Kirdat, was arrested on November 13. She was a concurrent auditor and used to conduct monthly audits.

Meanwhile, the other directors have all gone underground. An EOW team is at present in Punjab, working on a tip-off that two of the directors, Daljit Singh Bal and Gurnam Singh Hothi, might be hiding there. Bal, like Arora, was a director of the bank and on the loans committee till the time its affairs were taken over by the RBI.

Two other directors, Parmeet Sodhi and Surjit Singh Narang, filed anticipatory bail applications, which were rejected by the Sessions Court on November 11.

Protests across the city

The PMC Bank crisis has sparked off protests across Mumbai. On November 6, a group of protesters stood outside the RBI building in the Bandra Kurla Complex for hours till an official came out to talk to them.

“All that we were told was that everything is being done to ensure justice. But no one is telling us exactly how that justice is going to come. The Finance Minister has already passed the buck, saying that the matter comes under the RBI’s purview, while the RBI won’t even entertain us,” Modsingh said.


The depositors have also been staging protests outside the court every time an accused is produced for remand or other purposes. Around 150 depositors have now hired their own lawyers to oppose any applications for bail that the accused file.

“The crisis is a case of gross negligence not just by the bank but by the RBI. Those concerned should also be booked and arrested. The Indian banking system will not improve unless such strict steps are taken, and account holders will continue to suffer. What happened amounts to criminal negligence,” advocate Nitin Satpute, who is representing the depositors, said. Satpute filed independent applications on November 6 opposing the anticipatory bail pleas submitted by Sodhi and Narang.

Earlier, on September 30, another group of depositors, filed petitions before the Bombay High Court seeking withdrawal of the restrictions on the bank’s transactions. The court has sought a formal reply from the RBI regarding the steps taken so far to protect the interests of the depositors.

“You are the banker’s bank. We are not inclined to interfere or dilute your authority. We just want to know what you are doing,” Justice S. Dharmadhikari, who was hearing the petition along with Justice Riyaz Chagla, told the RBI’s lawyer at a hearing on November 4.

The grievance against the RBI has also been voiced repeatedly by depositors in several meetings that Mumbai Police Commissioner Sanjay Barve had with them at the Mumbai Police headquarters in Crawford Market. The meetings were held to apprise the depositors of the progress in the case and more than one of them lamented that there has been no coherent response from the RBI so far.


Barve, who also has a banking background, confirmed that the whole crisis arose from a criminal breach of trust on part of the bank, an institution that is supposed to safeguard the interests of the depositors but did exactly the opposite.

Not all the depositors, however, have much faith in protests.

“I attended a protest a month ago but only saw political leaders taking the opportunity to further their own agendas. I have seen enough protests happening over the issue to know that they are bringing no results. The system will take its own time and maybe, someday, we can have full access to our own money again,” Chris Lobo said.

Chris and his friends, who had accounts in the PMC, have now taken it upon themselves to keep the issue alive and ensure that no development goes unnoticed. All the account holders in Thane and nearby towns are now connected via WhatsApp groups where all updates are regularly shared. With the establishment showing scant regard for their problems, all they can do is to stand with each other.

( With inputs from Manojit Saha )

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