Shady Money Trails, Regulatory Lapses: Details of the PMC Scam

Photo used for representational purposes

(Photo: PTI)

In the aftermath of the Punjab and Maharashtra Co-operative (PMC) Bank scam, the loans extended by the lender, often in an arbitrary and unregulated manner, emerged as the root cause.

It has now come to the fore that real estate firm Housing Development Infrastructure Ltd (HDIL) – which was the primary beneficiary of such loans – and its promoters invested the money in a number of companies with questionable financials.

Web of Companies

According to an Indian Express report, Rakesh and Sarang Wadhawan, promoters of HDIL, invested Rs 174 crore in two Mauritius based companies: Sunsara Investments Ltd and Sunshine Overseas Ltd between 2010 and 2014.

The investments were made by another company by the name Privilege Oil & Gas Pvt Ltd, which was in turn, promoted by Wadhawans.

The report cites Registrar of Companies (RoC) records to suggest that while the two Mauritius-based firms had not generated any revenue from the time of their inception in June 2010, even Privilege Oil & Gas’s operations had been revenue-less from 2012-13 onwards.

The report further says that besides HDIL, at least 16 firms linked to the Wadhawans borrowed Rs 2,042.45 crore from PMC Bank. A significant part of this money was then ultimately used to invest in HDIL by allegedly routing it through multiple related entities.

Most of these companies like Privilege Oil & Gas have negligible or zero revenue from operations besides having a common pool of directors and cross-holdings.

Did RBI Falter As Well?

The crisis in the PMC Bank has also raised questions on the regulatory framework of the Reserve Bank of India (RBI). Against the backdrop of the Punjab National Bank (PNB) scam that hit the banking system in February 2017, the central bank's safeguards against frauds have once again come under the scanner.

A separate report by the Indian Express suggested that the fact that the non-reporting of dubious loans extended by PMC Bank went undetected for 11 years, indicates that banks and NBFCs could still be able to hide the full extent of their bad loans.

The report also says that a number of fictitious bank accounts were created in the names of people who had passed away or had wound up their accounts with the bank, to facilitate these loans.

These accounts were created outside of the bank’s Core Banking System and were simply entries in the documents submitted to the RBI, the report said.

(With inputs from Indian Express)