PMC Victims: Rs 1 Lakh Insurance in 1993 Should be Rs 1 Cr Today

A high-living father-son duo had 44 bank accounts in a loosely regulated outfit — PMC Bank.

Image used for representational purposes.

(Photo: Aroop Mishra / The Quint)

Vo kaun tha vo kahan ka tha kya hua tha usey
Suna hai aaj koi shakhs mar gaya yaaro

(Who was he, where did he come from, what happened to him
People shrugged; a random guy had just died)

These iconic lines penned by Shahryar for Gaman (film; 1978) capture the pathos of three deaths in Mumbai on Tuesday, 15 October, so poignantly:

(Graphic: Aroop Mishra  The Quint)

Now back to Shahryar’s devastating lines:

Ajiib saneha mujh par guzar gaya yaaro
Main apney saaey say kal raat dar gaya yaaro

(A strange accident occurred with me
I got terrified by my own reflection)

Yes, the astonishing PMC Bank Scam was the tragic saneha (accident) that terrified Sanjay, Fattomal and Yogita so much that they simply succumbed, dead.

Three weeks out, I continue to get shocked by the PMC Bank fiasco. Not so much by the audacity of the scam, but the pusillanimity of the government’s response. Let me explain.

The PMC Bank scam was more audacious than any Bonnie and Clyde heist. A high-living father-son duo, Rakesh and Sarang Wadhawan, had 44 bank accounts in a loosely regulated outfit in Mumbai called Punjab & Maharashtra Cooperative Bank. Their shenanigans had begun in the late 1990s, soon causing a cash crunch. But Rakesh Wadhawan ‘gallantly’ stepped up with a deposit of Rs 100 crore to bail out PMC. Things got back to ‘normal’.

Having gotten away lightly with the first crime, the Wadhawans got bolder (aka reckless). They managed to install Waryam Singh, a former director of HDIL, their infrastructure group, as the Chairman. Another man, called Joy Thomas, with two wives, one in Mumbai and another under an alias, Junaid, in Pune, became MD. By now the Wadhawans had sucked nearly Rs 6500 cr, a mind-boggling 73 percent of the total loan book of the ill-fated bank. This robbery took place right under the noses of the RBI and the auditors. How? We do have some pieces of the jigsaw figured out now.

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The 44 Wadhawan accounts were ‘masked’ by 21,000 – yes, get this, twenty-one thousand – fictitious accounts, many in the names of dead depositors. Allegedly, the bank allowed overdraft draw downs, with the cash travelling via hawala (laundering) channels to Dubai. The tainted money was ‘washed back’ clean into PMC accounts as deposits. While loans were given to the Wadhawans in the hidden-but-real ledgers, the fake loan accounts of 21,000 depositors were sent in the Advanced Master Indent to RBI. That’s ‘masking’, got it? And, voila, PMC declared a blockbuster result on 31 March 2019:

(Graphic: Aroop Mishra  The Quint)

Now, even as the regulator was stuffing fudged reports in its information vaults, the father-son duo was gleefully buying a Dassault Falcon 200, a Bombardier Challenger, and a luxury yacht moored in Maldives.

As in any ponzi operation, the party continued for as long as the cash was travelling from one blighted account to another, filling up the holes. But Waryam Singh was buying horses, Joseph/Junaid was buying apartments with his second wife, and the father-son duo was living the high life. So, once the music stopped – ie, the ponzi chain was broken by haemorrhaging cash – poor bank depositors were left holding the ruins.

Why Bell The Cat If You Can Kill It!

But what happened next was even more tragic, and whoever conjured up this policy gem at RBI deserves to be, well… retired!

PMC’s stunned depositors were told they could withdraw a maximum of Rs 1,000 over six months. That’s it. One piffling thousand over six months. As a fully justified hysteria and anger got out of control, the hapless regulator increased the limit to Rs 10,000, then Rs 25,000 and now Rs 40,000.

But this is still astonishingly inexplicable. Why? Because India has a deposit guarantee scheme which assures that if a bank goes bust, each depositor is protected up to a maximum of Rs 1 lakh per aggregate account. And if you had sensibly opened two joint accounts, with the wife named first in one and the husband named first in the other, you would have been protected up to Rs 2 lakhs.

Now pray, I would like to ask the officer who passed the astonishingly inexplicable order of ‘a maximum withdrawal of Rs 1,000 over six months’ – why, sir, did you not pass a simple order saying ‘allowed to withdraw 100 percent of your cash up to a maximum of Rs 1 lakh’ – because, with a deposit insurance of Rs 1 lakh per aggregate account, such an order would have perhaps allowed over 90 percent of depositors to get their entire money out of the bank without causing even a penny’s loss to the exchequer. Everything would have been recouped from the insurance company. Did nobody stop and think this through? Was nobody aware about the deposit insurance rule? Or did nobody give a damn?   

Alas, the easiest thing for any government to do is ban, freeze, stop, and choke… one fatal flourish of the pen and the job is done. While the alternative is messy, rigorous, and difficult – to search for creative solutions, to do positive governance. Why bell the cat when you can simply kill it?

Rs 1 Crore Per Account if Deposit Insurance was Indexed!

Allow me a little diversion here. India’s deposit guarantee rule of Rs 1 lakh per depositor was decreed in 1993, over a quarter of a century ago. It’s remained unchanged since then, even as the economy has grown in decadal multiples and inflation has denuded the real value of cash.

Just inflation indexing this Rs 1 lakh deposit insurance would have made it Rs 15 lakh+ today; and further indexing it to GDP multiples would have brought the figure close to Rs 1 cr, benchmarking us with the best in the world. Remember, China guarantees deposits up to USD 81,000 per account; even tiny/bankrupt Greece protects each depositor for EUR 100,000. But a 5-trillion-dollars-in-the-making India still does a measly Rs 1 lakh per depositor. It’s shameful.     

The above saga clearly shows the power of positive governance versus the cancer of ban-this-ban-that policies. In one, you could have given each PMC depositor the ability to withdraw his/her entire cash up to Rs 50 lakh+, without causing a penny’s loss; but in the other, you passed an unconscionable order restricting people to ‘Rs 1,000 in six months’.

Unfortunately, Sanjay Gulati, Fattomal Punjabi and Dr Yogita Bijlani died.