The fiasco involving Punjab and Maharashtra Co-operative Bank (PMC) has stirred up a hornet’s nest. One bad account, Housing Development & Infrastructure Ltd (HDIL), is said to be the cause of the downfall of the bank. According to reports, the HDIL exposure was not reported for six to seven years. HDIL did not service the loans for three years and yet, it was not reported as non-performing. One-third of the loan portfolio of the bank was being enjoyed by one group. The rule book has laid down norms for maximum exposure to a single entity or group. The bank successfully evaded these checks and balances. How the auditors could be hoodwinked for such a long time is a case ripe for investigation.
Compared to other banks, the loan book of PMC was not too large. The auditors and RBI inspectors should have been looking at the large loan accounts with a fine-tooth comb. If this was done, at some point in time, the gaming of the system could have been detected. A point to note here is that the exposure was not caught by inspecting authorities but came to light because the bank divulged it. Had the bank not come clean, how long this duplicity would have continued is anybody’s guess.
PMC was said to be amongst the better managed co-operative banks. One shudders to think how many such surprises are hidden in other co-operative banks. This will shake the confidence of the general public. It is the small depositors who are getting badly impacted. They do not have too many choices. New generation private sector banks, with their high threshold of minimum balance, are out of reach. The customer service levels of public sector banks is not very inspiring. Co-operative banks are patronised as they have the local flavour, have good customers service. After the PMC bust, this banking avenue will also be looked at with apprehension.
Will any accountability be fixed on the officials of the regulatory authorities? Over the last so many years, there would have been multiple inspections by different personnel. How could they not notice this sleight of hand by bank officials? This is something that needs to be investigated to make the inspection team work more diligently in the future.
KV Premraj , Mumbai
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