The probe by Enforcement Directorate (ED) on the role of PMC Bank officials in its shady dealings with Housing Development Infrastructure Limited (HDIL) has opened a can of worms. In a latest turn of events, Waryam Singh, the former Chairman of the bank, has denied that he was aware of loans worth Rs 2,500 crore given to HDIL.
Singh told ED that he was only aware about the Rs 200 crore loan and he had no idea about any other loans. He has said in his statement that he was never made aware of loans worth Rs 2,500 crore given to HDIL and the board was also informed about it.
Singh put the blame on Thomas and other bank officials, alleging that they did not keep the board in loop while sanctioning loans to HDIL.
Waryam was appointed as Chairman of PMC Bank in in 2015.
PMC started the process to cover securities, that the outstanding reflected in PMC books was not matching with the outstanding reported in the balance sheets of HDIL.
HDIL officials had said that only the Chairman was aware about loans sanctioned to the company.
The RBI Inspection Report was submitted and Waryam was aware about it and similarly compliance report was also submitted to him.
HDIL was taking undue liberty even before Initial Public Offer (IPO) was launched in 2007. HDIL had borrowed Rs 500 crore loans before launching the IPO and that was repaid later. Joy Thomas, former Managing Director of PMC, told ED that the bank was dependent on business to HDIL.
As per statement of Thomas, "the bank was always dependent on HDIL as more than 60 percent of business came from HDIL group companies and PMC bank charged upto 24 percent of interest rate from HDIL and group companies for the loans provided which were much higher".
However, HDIL shifted their lending requirements from PMC to other banks, especially after IPO, but some small company accounts of HDIL were still with PMC. HDIL, after five to six months of the IPO, approached PMC for QIP requirements and opened some accounts. They opened a separate account and kept it in a fixed deposit that allowed overdraft facility.
HDIL had kept around Rs 400 crore in fixed deposits for the QIP with the bank. The loan was utilised by HDIL but it was taken in the name of other company. When lock-in period was over, they said they will go for another round of QIP and will repay the loan amount after that.
At that time, HDIL was involved in raising money from various financial institutions and banks and HDIL was paying only interest of overdraft facilities.
In 2012, HDIL again approached PMC to finance Nahur and Mulund projects. HDIL projected a profit of Rs 1,100 crore after completion of projects and repaying of loans. PMC funded around Rs 400 crore in this project.
Situation worsened when HDIL started defaulting on other banks loans and they started adjusting the full amount received as installments from buyers towards loans of other banks because of which there was no cash flow back to PMC.
Thomas told ED that the bank then stopped funding HDIL and started asking for security, which was earlier skipped. After that, PMC started giving only small-ticket loans to HDIL only but at the time to save company from National Company Law Tribunal, PMC had sansctioned overdraft facilities of Rs 96 crore which HDIL paid to Bank of India.
Thomas reiterated that they wanted to prevent the collapse of the bank and started collecting interest from HDIL.
The last rate of interest was raised in 2017 from 13 percent to 18 percent. Thomas admitted that they were aware that HDIL's loan had breached the limit of RBI and there was fear of loss of reputation as RBI would place various restrictions.
As per norm 40 percent of the own fund for group and 15 percent of the own funds for single is eligible.
In this case, Thomas stated that they have not used any parameters for sanctioning loans and they have skipped many set norms for sanctions of loans. Thomas has also said that 21000 accounts were created to spread the amount of pending loans of HDIL but the core banking system hasn't been compromised and it was just mentioned in the report to avoid any adverse action from the RBI which would have led to collapse of the bank and eventually problems to lakhs of depositors.