A source said that the Reserve Bank of India (RBI) had reportedly recommended removal of the now scam-hit Punjab and Maharashtra Cooperative Bank (PMC) Chairman, Waryam Singh, in 2018. This was after it had found out his involvement in sanctioning loans to realty developer HDIL and related-entities without proper due diligence and much above the regulatory limits.

Singh, however, continued to remain the chairman until recently, the person familiar with the development said.

The RBI recommendation was sent to the Registrar of Cooperative Societies of Maharashtra which has administrative control over the coop banks in the state.

According to the source, of the Rs 8,880-crore loan book (as of September 19, 2019) that PMC had, more than Rs 6,500 crore or over 73 per cent of the assets are with the bankrupt HDIL group only, which has been an NPA account since the past two-three years and yet the bank kept on lending to the once leading slum redeveloper.

The latest tranche of Rs 96.5 crore was disbursed only on August 31.

It can be noted that Singh was on the board of HDIL from 2006 to 2015 as a non-executive director and held 1.91 per cent stake in the now crippled company, which could possibly be a conflict of interest.

Singh stepped down from the board in March 2015 before selling his entire stake in the company.

PMC was placed under an administrator by the RBI on September 24 and suspended its management led by managing director Joy Thomas. The regulator has also banned the cooperative from extending fresh loans or taking deposits, apart from capping withdrawals at Rs 10,000 per each individual customer for the next six months.

It can be noted that cooperative banks keep failing as there is a dual control on urban cooperative banks by the RBI and the state where they are registered. Moreover, almost all these entities are controlled by politicians. This dual control has been blamed for the oft-repeated crisis at cooperative banks. In fact, PMC is the 24th UCB to be put under RBI administrator this year alone.

“During the FY2018 annual inspection, the RBI had found that chairman Waryam Singh, who was on the board of HDIL, had been favouring the realtor by sanctioning loans without proper due diligence and much above the regulatory caps,” the source told PTI.

In the 2017-18 inspection, the RBI had also reportedly asked the bank to classify the entire HDIL accounts as NPAs. At that time, the bank had said the loans to the group was only Rs 258 crore and the exposure was fully provided for with collaterals.

The RBI does an annual inspection of the books of urban cooperative banks (UCB).

What are UCBs?

UCBs are registered as cooperative societies either with the respective State Cooperative Societies Act or under the Multi-State Cooperative Societies Act of 2002.

They are regulated and supervised by the Registrar of Cooperative Societies (RCS) of the state they are registered with or by the Central Registrar of Cooperative Societies (CRCS).

The RBI regulates and supervises the banking functions of UCBs and carry out on-site inspections and off-site surveillance on them. It also issues directions and operational instructions to UCBs to streamline functioning and to protect the interest of depositors.

On September 19, the bank’s now suspended managing director Joy Thomas, in a four-and-a-half page letter, had confessed to the RBI about sanctioning of disproportionate amount of loans to HDIL Group without knowledge of all the board members; ever-greening the loans to other real estate developers and also hiding actual NPAs numbers. He informed that very few board members were aware of the wrongdoings at the bank.

Thomas also admitted in the letter that the bank’s exposure to HDIL Group was over Rs 6,500 crore, or nearly 73 per cent of its total loan book of Rs 8,880 crore as of September 19, 2019, the source said.

At a press conference last Friday, Thomas had just said the loans to HDIL were sanctioned by the central office but refused to name anyone. He had also admitted that as late as August 30, 2019, the bank had extended two loans worth Rs 96.5 crore to the HDIL group keeping the board in the dark, “so that the company could clear its dues to Bank of India, which otherwise would have taken HDIL to the NCLT which would have completely eroded the value of its collaterals“.

Thomas along with six key people -- a few board members, including the chairman Singh and one or two senior bank officials -- were sanctioning the loans to HDIL group, the source said.

The loans were sanctioned to the group since 2008, but most of the board members were not in the loop. As per the regulations, single-entity exposure limit for banks is 15 per cent of their capital fund. For group companies, the exposure limit is 20 per cent. Clearly, PMC’s exposure to HDIL is almost four times of what the RBI mandates.

In a press conference Friday, Thomas had said bank’s exposure to the HDIL Group was to the tune of Rs 2,500 crore and admitted that the board was not informed of the status of these loans - that they have been NPAs for the past three years or more.

It can be noted that the September 24 action of the RBI came just five days after the bank had approached the regulator (on September 19) and had admitted that it had not classified the loans given to HDIL as NPAs, even as the company had defaulted on repayment for the last two-three years.

The RBI had also appointed JB Bhoria, an ex-chief general manager with the central bank as its administrator. Bhoria is now in the process of filing a complaint with the Economic Offence Wing of the Mumbai Police against Thomas.