Some PMC Bank Depositors Got Whiff Of Whistleblower, Started Eroding Funds Before RBI Clamp Down

Frenetic large cash withdrawals by a few large depositors of the now crippled Punjab & Maharashtra Cooperative in the third week of September following a whistleblower leak, prompted regulator to strict withdrawal cap from the cooperative last week, say sources.

This massive fund erosion began after some of these large depositors reportedly got a whiff of the whistleblower, reportedly a board member, leak to the regulator, which finally undid the bank on September 23, the sources added. It can be noted RBI had put PMC strict restrictions including limiting withdrawals at Rs 10,000 and banning the bank from any lending activities for the next six months.

The whistleblower report has detailed the massive misreporting of NPAs by the bank, primarily because of its huge exposure to crippled developer HDIL that owes around Rs 6,500 crore to the bank-as much as 73 percent of its total loan book--as per the whistleblower and also its suspended MD Joy Thomas' admission to the RBI.

The RBI slaps such restrictions on banks if it finds withdrawals are beyond the prescribed threshold in any given period so that the interest of small depositors are protected. The action was necessitated as in case of PMC, the small depositors constitutes around two-thirds of its depositor base, the source explained.

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"In the initial inspection, the RBI has found that there was massive erosion of deposits from certain accounts. These withdrawal were large in nature. This resulted in the strict action by RBI," the source said.

While RBI spokesman did not comment, the PMC administrator could not be reached. PMC, which is among the top 10 urban cooperatives, had total deposits of around Rs 11,600 crore as of September 19, and small depositors consisted of as much as 63 percent of this with an average balance of under Rs 10,000. Its loan book stood at Rs 8,880 crore of which it admitted as much  Rs 6,500 crore are given to HDIL and are now NPAs.

While suspending the PMC management, RBI put a slew of restrictions in the bank, such as limiting withdrawals to initially at Rs 1,000, which was later increased to Rs 10,000 during six months the period, resulting into widespread protest from the aggrieved customers, and also any other lending activities.

The regulator has found out that large withdrawals started from September 17, after the whistleblower, has leaked the information to the RBI on NPAs of HDIL being hidden, which forced the then managing director Joy Thomas, to confess to the wrongdoings.