PMC bank had misreported HDIL’s total exposure for years and used thousands of dummy accounts to hide the realty firm’s NPAs. (Photo: Reuters)

At least 21,049 dummy accounts were used by the Punjab and Maharashtra Co-operative Bank to hide accumulated non-performing assets of realty firm Housing Development and Infrastructure Limited (HDIL), revealed suspended PMC bank managing director Joy Thomas's letter.

His confession letter to RBI also revealed that the bank's exposure to bankrupt HDIL has been pegged at Rs 6,500 crore, which is 73 per cent of the bank's total assets.

"As the outstandings (loans) were huge and if these were classified as NPA, it would have affected the bank's profitability and the bank would have faced regulatory action from RBI," Thomas said in the letter.

Going by his confession, the bank had misreported HDIL's total exposure for years and used thousands of dummy accounts to hide the realty firm's NPAs-a tactic used by conniving officials of the bank to fox the banking regulator.

"The concealment of information from the board, auditors and regulators was due to fear of reputational loss," Thomas added.

Joy Thomas goes on to say in the letter that some large accounts of HDIL were not even reported to RBI from 2008 because of "fear of reputational risk".

In the letter, Thomas also mentioned how he along with six key executives including chairman Waryam Singh played a key role in sanctioning loans to HDIL despite its failure to repay loans.

The lending to HDIL is also in violation of banking norms as Waryam Singh was an HDIL board member. In such cases, loans awarded to HDIL should have been classified as related-party transactions.

According to regulation, a single entity exposure limit for banks is 15 per cent of their capital fund while it is 20 per cent for group companies. In HDIL's case, the exposure was four times the normal limit at 73 per cent.

Details about the fraud first emerged a few days ago after RBI took strict action against the bank and banned it from lending or accepting deposits for the next six months.

It had even restricted lending to Rs 1,000 during the period, but later bumped it to Rs 10,000 as thousands of panic-stricken customers of the bank protested.

An investigation has already been initiated by the Mumbai Police's Economic Offences Wing (ECO) and a case has been registered against top management officials at the Mumbai-based co-operative bank and director of HDIL.

Meanwhile, a lookout notice has also been issued against HDIL managing director Sarang Wadhawan and whole time director Rakesh Kumar Wadhawan.