HDIL Promoters Rakesh Wadhawan and his son Sarang Wadhawan, have received judicial custody on Thursday after a special court passed an order in this regard. The Father-Son duo has been arrested regarding the Punjab Maharashtra Co-operative Bank scam amounting Rs 4,355-crore.

The court remanded the duo in judicial custody after the central agency did not seek their further custody. Total of 5 people has been arrested in the case including the Wadhawans, who were arrested last month by Mumbai Police’s Economic Offences Wing (EOW).

This comes after thousands of depositors have been stranded without their money in the bank. One of the biggest banking scams in the country surfaced earlier this year and since then RBI has restricted the withdrawals limits for the PMC depositors. In fact, up till now, four PMC customers have died of which 3 died out of shock and 1 died because they could not get money out of their PMC account for their heart surgery.

Punjab Maharashtra Co-operative (PMC) Bank is a Scheduled Commercial bank established on February 13, 1984, as a single branch Bank. Initially incorporated as a cooperative bank, PMC got the status of Schedule Commercial Bank from the Reserve Bank of India in 2000.

Over 35 years, the Bank expanded its network to 137 branches across six states (Maharashtra, Gujarat, Delhi, Goa, Karnataka, Madhya Pradesh and Andhra Pradesh.). Currently, the bank has total deposits of about Rs 11,617.34 crore.

A banks’ main businesses run from their advances/loans & the interest that they earn from it. However, Indian banks are infamous for having a huge chunk of NPAs (Non-Performing Assets) in their Balance Sheets. In simple language, NPAs are the accounts/customers/borrowers who have taken loans/credit facilities from banks and are not repaying the amount of the loan. A bank accepts deposits from depositors and uses it to advance finances and credits to the borrowers. While the depositors get interested in their deposits, borrowers pay interest on their loans. This is how the bank makes money by a netting of these two major sources.

Just like any other bank scam, in case of PMC as well, there is one major defaulter account, responsible for the downfall of the bank. The bank had advanced loans amounting to Rs. 4533.43 Crore to Housing Development and Infrastructure Ltd (HDIL) and its group entities. If we calculate then of the total loans that the bank has, 70% are advanced to HDIL & its associated entities. The bad news came when HDIL became bankrupt.

There is a clear sign that there is some monkey business going on here because no bank is irresponsible enough to advance such a huge chunk of money to a major defaulter. Whenever PMC was in money crunch or economic crisis, HDIL promoters would invest money in the bank. Probably, this time PMC tried to return the favour by advancing the huge loan amount.

It is not very surprising to note that, current PMC chairman, Wariyam Singh who is one of the five arrested people in the case, was formerly a director in HDIL. It is also being reported that he could bag the chair in PMC because of the influence that Wadhwans (Chief Promoters of HDIL) had over the bank.

Bank’s scam surfaced in September-2019 when it came to the knowledge that Bank has opened around 21,049 fake accounts with bogus names to conceal 44 loan accounts. PMC allowed HDIL Promoters to operate password-protected ‘masked accounts’. It is surprising to know that while its bank’s policies to run after defaulters, this bank tried to conceal the shortcoming of its biggest defaulter.

The scam was revealed by some of the honest women employees of the bank, who went to RBI to confess about how they are aware of the ghost bank accounts. As a result, RBI started proceeding secretly and announced that PMC depositors will be allowed to withdraw only Rs. 1000/- from their bank accounts in 6 months. The news went viral went the depositors went to the bank and could not get an explanation for the threshold enforced upon them.

Soon, the country was well aware that there is something wrong and as a result, the scam was exposed. While the Enforcement Directorate (ED) has sealed the assets of Rs 3,500 Cr of the HDIL group and arrested the prime accused with the help of Mumbai Police, thousands of depositors are still unable to understand as to why they are being denied their own money, when they are not the defaulters at all.

Currently, out of total advances of PMC, 73% are NPA which is a very poor situation for a bank and while the accused have a lot of personal property and assets, the middle-class depositors have nowhere to go. Looking at the prior case of banking scams, it turns out that getting money from a scam affected bank is not that easy. It may take even a year or more before things restore to normal.

Also, if the bank goes into liquidation, depositors will get only Rs. 100,000/- no matter how much money is in their account. This is because of the DICGC policies. Deposit Insurance and Credit Guarantee Corporation (DICGC) is the insurance authority which ensures the money of depositors. The inherent agreement between the depositor, the bank & DICGC covers only Rs. 100,000/- compensation. And this applies to every single bank across the country, irrespective of their size, sector, scale etc. In many countries, the depositor insurance limits are worth Rs. 50 lakh or more, but not in India.

The prime accused Rakesh Wadhawan and his son Sarang Dhawan are millionaires and own luxurious cars including Bentley, Rolls Royce, BMW as well as have yachts, jet planes, boats and much more in their name. In foreign countries, if a bank has a defaulter, then government, instead of liquidating the bank, sells the personal properties of the defaulters. If this happens in India, then for sure, the HDIL’s default could be recovered.

The RBI restricts the withdrawal of amount from the accounts because; if depositors withdraw all of their money in the fear of losing their money due to scam, then the bank will collapse. Although, after a lot of protest and flak that agitated following the scam revelation, RBI eventually increased the withdrawal limit to Rs. 10,000 first, then to Rs. 25,000 & finally to Rs. 40,000.

Now it the need of the hour that the central government need to make some strict policies to prevent such banking frauds in the country. While there are no officials or authorities whatsoever, coming forward to explain this accord, Maharashtra CM, Devendra Fadnavis said that he will look into the matter post-election. God knows, how many more lives might get lost until then.