*Eight years before the PMC Bank scam was unearthed, a whistle-blower warned RBI about a gigantic fraud. What did the RBI do? It asked the then CEO to investigate. That man is in the dock facing charges of fraud*.
In September 2019, RBI imposed restrictions on the bank after discovering financial irregularities, including under-reporting of bad loans.
Few weeks ago, the Reserve Bank of India (RBI) permitted a proposal by financial services firm Centrum Financial Services to take over the troubled Punjab and Maharashtra Co-operative (PMC) Bank. Centrum, along with payment service company BharatPe, is poised to form a small finance bank to run the co-operative bank under an RBI-supervised amalgamation scheme that will be announced soon.
The RBI action ends nearly two years of uncertainty for PMC Bank depositors who have been anxiously waiting to get their money back. Several of them survived on charity and loans.
A quick recap is in order because it is a two-year-old case.
In September 2019, RBI imposed restrictions on the bank after discovering financial irregularities, including under-reporting of bad loans. Around 9 lakh depositors were bound by curbs on withdrawing money. PMC’s dire finances intensified worries about the health of India's financial institutions, coming as it did after the IL&FS collapse. The case is also mired in a litany of litigations.
After the torrent of bad news, the RBI-orchestrated resolution finally spells good news for depositors. Yet, it begs the question: how did things come to such a pass? Could the PMC Bank crisis have been averted?
New evidence shows that there were enough alarm bells that could have prevented, if not alleviated, the troubles that PMC Bank sank into.
RBI gets a letter
As early as 2011—eight years before the PMC Bank scam became public—the RBI was warned about the shenanigans at the bank by a whistleblower.
On January 28, 2011, the whistleblower—an employee of PMC Bank— shot off a letter to A Udgata, chief general manager-in-charge of Reserve Bank of India (RBI)’s Urban Banks Department. The letter raised a raft of alarming violations of rules in the Mumbai-based co-operative bank. It especially highlighted the bank’s dealings with two entities named Housing Development and Infrastructure Ltd (HDIL) and Dewan Housing Finance Corporation (DHFL).
DHFL was once one of India’s top non-banking finance companies, or so-called shadow lenders, but would later collapse under the weight of debt. Realty company HDIL would become bankrupt.
The letter underscored the nexus between PMC Bank brass and the two companies, which were controlled by the same family—the Wadhawans. The Wadhawans are now facing a litany of investigations into various financial irregularities.
PMC Bank manipulated its net time and demand liabilities (deposits) using HDIL, according to the letter. “In return, all black money of HDIL and group companies which are received in cash are deposited in the bank accounts of PMC Bank and these cash deposits, above the specified limits, are not reported to the RBI or sometimes window dressed so that RBI cannot make out that black money is being made white here,” said the letter.
In the letter, the whistle-blower also warned about gross underreporting of non-performing assets (NPAs), evergreening of loans, fudging of loan accounts and entry of fake deposits.
As against the actual NPAs of 9 percent, the bank showed NPAs of 1 per cent. Many large borrowers were related to the directors of the bank and bank executives were asked to manipulate the accounts to facilitate loan sanction by creating fresh proprietary firms and issuing new loans to these companies to close earlier NPAs, the letter said.
Fake deposits were shown to inflate the loan book, the whistleblower complained. “About Rs 250 crores of deposits are updated in the system as fake deposits, just to portray themselves as big banks and receive awards …,” the letter said.
The whistleblower asked RBI to investigate these violations.
What did the RBI do?
The central bank acknowledged receipt of the letter. It then sent a letter on March 7, 2011, to the chief executive officer (CEO) of PMC Bank asking him to investigate the issue and give a response to the regulator.
The then CEO was Joy Thomas, who was arrested by The Economic Offences Wing (EOW) of Mumbai Police on October 4, 2019. Investigations revealed that Thomas led a double life converting to Islam with the name, Junaid Khan to marry his personal assistant and gifted her nine flats in Pune.
*The whistleblower essentially alerted about the abject collapse of corporate governance and rampant fraudulent practices. Those wrongdoings would grow into a full-blown scam because the person assigned to investigate was allegedly one of the protagonists of the scam.Heard about letting the fox guard the henhouse*
The EOW also found the bank officials replaced 44 loan accounts of HDIL with 21,049 fictitious accounts to camouflage huge loan defaults by the real estate group. This action would play a vital role in landing PMC Bank in the current crisis.
Another shot at checks and balances
The RBI had another crack at halting PMC’s descent into financial ruin.
*In 2018-2019, statutory auditors handed PMC Bank an audit classification ‘A’ rating. The ‘A’ audit classification is the highest rating for such exercises, signalling things are kosher at a financial institution*.
_This rating was given at a time when a massive fraud was gnawing at the bank and its balance sheet was fudged with large scale underreporting of NPAs_
The ‘A’ audit classification given by the statutory auditors finds mention in the bank’s 2018-19 annual report. The role of the auditors, Lakdawala and Co, has since come up for question in the light of the massive scam.
[ There is not a single instance of misdemeanor ,not a single fraud has been traced by the statutory auditors anywhere pan India since the introduction of the scheme]
*The RBI inspects a co-operative bank once in 18 months based on audit reports. PMC Bank’s auditors not only failed to unearth gross financial irregularities in the bank for years, but continued to give top audit classification to the bank.If the auditors had done their job, depositors could have been warned of the impending crisis*.
A curious appointment
Soon after the whistleblower’s letter reached the RBI, a former senior RBI official joined PMC bank as general manager in charge of HR and training.
LN Kamble, who served in the RBI’s Department of Urban Cooperative Bank supervision, joined PMC Bank as general manager two months after he retired in March 2012.
Kamble held on to the post between 2012 and 2019—when the scam festered— and resigned in October 2019. That was one month after the RBI superseded the PMC Board.
Kamble also happened to be the chairman of the RBI Officers’ Credit Society that deposited Rs 100 crore in PMC Bank. RBI Officers’ Credit Society, the Reserve Bank Officers' Cooperative Credit Society Ltd (RBOCCS) and Reserve Bank Staff & Officers Co. Op. Credit Society Ltd together deposited nearly Rs 190 crore in PMC Bank.
According to Section 37 A of the RBI staff regulations, no officer of the central bank can take up private employment after exit either by resignation or retirement. To do so, an officer requires the permission of the RBI governor.
However Kamble asserted that he received all necessary permission from the RBI to join PMC Bank and his role in the bank was centred on HR and training.
“I was among the two general managers in PMC Bank. None of us had access to the credit department. I was in charge of HR and training in the bank,” Kamble said.
Kamble said the PMC Bank scam was due to the creation of fake FDs after the credit exposure limit to HDIL was hit, adding that under rules for loan against FDs, there is no limit.
“Nobody was aware of this scam.”
Why do you need diversification?
Presenting 6 companies that used to be industry leaders at some point in time.
They were so-called "Quality" and "too big to fail" companies.
Fundamentals and Price is visible to all now.
As a retail investor, you can never fully understand the intentions and under the carpet issues of promoters and managers.
This is why you need to diversify.
1) A concentrated portfolio is a double-edged sword. If you are not experienced enough, it can cut you deep.
2) Today, you treat some stocks as JUNK may turn out to be multibaggers, and it all depends on the management intentions.
BSE, NSE suspend trading in DHFL shares
#DHFL stock to stop trading from Monday. Good luck to whoever bought without thinking. Use Nudge & be sensible.
Again, reiterating ...
DHFL ~ Takeover by Piramals:
Banks / Creditors Claims: Rs. 100,064 Crores.
Piramals Bid: Rs. 37,250 Crores
Bank Write~offs: Rs. 50,000 Crores
Other creditors / FD holders lose Rs. 13000 Crores.
Fixed Deposit holders to receive NOTHING.
Equity Shareholders to be written~off.
Stock to be delisted.
Will Uttam Galva Steels repeat the same story of DHFL?
Yes, mostly retailers get cheated every time! Be cautious if you have shares of Uttam Galva Steels!!! ⚠️
#UTTAMSTL #DHFL #InvestingUniversity
One of the known guys going to lose his hard-earned 20 lakhs+ in DHFL.
Which was more than 60 lakhs + for him as he didn't sell a single stock stating DHFL will be 1000 rs stock when it was in bull run.
Diversification is the key.
Don't put all eggs in the same basket.
Keep booking profits at some time. (And maybe then re-enter the same stock)
_*DHFL* ~ Takeover by *Piramals:*_
_Banks / Creditors Claims: Rs. 100,064 Crores._
_Piramals Bid: Rs. 37,250 Crores_
_Bank Write~offs: Rs. 50,000 Crores_
_Other creditors / FD holders lose Rs. 13000 Crores._
_Fixed Deposit holders to receive NOTHING._
_Equity Shareholders to be written~off._
_Stock to be delisted._
DHFL Takeover by Piramals:
Banks/Creditors Claims: Rs. 100,064 Crores.
Piramals Bid: 37,250 Crores
Bank Write-offs: 50,000 Crores
Other creditors/FD holders lose 13000 crores.
Fixed Deposit holders to receive NOTHING.
Equity shareholders to be written off.
Stock to be delisted.
Equity shares of #DHFL are likely to be delisted as part of the acquisition of the company by Piramal Enterprises as per NCLT's recent order. Investors should Avoid any kind of Trading/Investing in this stock as it posts significant risk of capital loss.
Dewan Housing Finance Corp Ltd (DHFL) share price hit 10 per cent upper circuit at Rs 22.85 apiece intraday on BSE, even as the debt-ridden company in an exchange filing said that its shares would be delisted. Its share price hit 10 per cent upper circuit at Rs 22.85 apiece intraday on BSE, even as the debt-ridden company in an exchange filing said that its shares would be delisted. As part of the Resolution Plan, the equity shares of the company are proposed to be delisted. The shares, when delisted, would most likely become worthless. The resolution plan had already received approvals from the RBI in February and the Competition Commission of India (CCI) in April 2021.
If you have DHFL shares, be careful. It is going to be delisted, and shareholders will get nothing during delisting.
The Central Bureau of Investigation (CBI) has registered another case promoters of DHFL (Dewan Housing Finance Ltd) for allegedly creating 2.60 lakh fake home loan accounts under the Pradhan Mantri Aawas Yojana. The promoters fraudulently availed benefits under PMAY to the tune of Rs 14,046 crores. The apex investigation agency found that Rs 11,755.79 crores were diverted to accounts created in the name of shell companies out of the Rs 14,046 crores.
#DHFL #HDFCBANK #ICICIBANK #MOTHERSUMI
#DHFL #INDIANB #INDUSINDBK #SAIL #WIPRO
The stock market can be highly rewarding, but it can be very brutal as well.
Here is an article, on the important lessons that we have learnt from past failures of companies.
#InvestingUniversity #InvestmentIdeas #NIFTY50 #DHFL #YESBANK
Make entry above 50 only
कंपनी ने 1,571 करोड़ रुपये की देनदारी पर डिफॉल्ट किया है। कंपनी बॉन्ड और कमर्शियल पेपर का भुगतान नहीं कर पाई है।
You are requested to note that the following security shall be excluded from Equity Derivatives segment.
Sr NoSymbolSecurity Name1DHFLDewan Housing Finance Corporation Limited
In view of the above
Tomorrow watch DHFL
Gap Down and Down
DHFL tanks 15% after rating downgrade
Experts advise selling the stock as well as staying away from such companies unless some big company buys it
DHFL is the sinking ship..
Bloomberg Sources: Banks Will Not Buy Any Further Loans From DHFL India. Lenders Do Not Find Good Pool Available With DHFL. PSU Banks Likely To Take Action Against DHFL Account Soon (Negative for DHFL
Buy dhfl @121.. Tgt 129-131..SL 117
Follow us for daily 3 to 4 intraday calls . See our history and track record 🙌
DHFL acquisition can happen
Looks like dhfl will have good days ahead
We may hope to see it above 200 in a month time if all goes good