The PMC case has sparked renewed concerns about the health of India's troubled banking sector. (PTI)

Highlights Joy Thomas arrested in an alleged Rs. 6,500 crore fraud case

PMC board members also charged with money-laundering by the probe agency

The case has sparked concerns about India's troubled banking sector

Joy Thomas, the suspended managing director of crisis-hit Punjab and Maharashtra (PMC) Bank, has been arrested in an alleged Rs 6,500 crore fraud case, sources in the Economic Offence Wing in Mumbai said.

The arrest comes on a day when the former board members of PMC and senior executives of its borrower Housing Development and Infrastructure Ltd (HDIL) were charged with money-laundering by the Enforcement Directorate.

The agency conducted searches at six places in Mumbai and neighbouring areas linked to the former chairman of the bank and promoters of HDIL.

Rakesh Wadhawan and Sarang Wadhawan, senior executives at HDIL, are in police lockup till October 9.

PMC Bank gave 75 per cent of its entire loan book to the now bankrupt HDIL. The two HDIL promoters allegedly created 21,000 fake accounts to camouflage the loans from PMC. The real estate firm continued to default on loans while PMC Bank allegedly did not mention the matter in its annual report. The cooperative bank kept giving loans despite the company being taken for insolvency, investigators said last week.

PMC Bank officials allegedly misled the RBI for over a decade from 2008 to August 2019. The fictitious loan accounts were not entered into the bank's core banking system - a factor key in the Rs 14,000-crore fraud at Punjab National Bank that was uncovered in 2018.

The PMC case has sparked renewed concerns about the health of India's troubled banking sector, which has been rocked by a multi-billion dollar fraud at a state-run lender, the collapse of a major infrastructure lender, bad loan issues at state-run banks and a liquidity squeeze that has hit shadow lenders.

On Thursday, the Reserve Bank of India on Thursday raised withdrawal limit for account holders of the stressed PMC Bank to Rs 25,000 from earlier withdrawal limit of Rs 10,000.

The Reserve Bank of India (RBI) last week moved to take charge of PMC, one of India's top five co-operative lenders with more than nine lakh depositors, and suspended Joy Thomas and the bank's board after uncovering lending irregularities.