- Rakesh Wadhawan and Sarang Wadhawan senior executives at HDIL
- They are accused of defaulting on loans worth nearly Rs. 6,500 crore
- The RBI had imposed withdrawal restrictions on account holders
Two directors of the real estate firm HDIL that set off the massive crisis at the Punjab Maharashtra Co-operative (PMC) Bank by defaulting on loans worth nearly Rs 6,500 crore have been arrested. Rakesh Wadhawan and Sarang Wadhawan, senior executives at Housing Development and Infrastructure Ltd (HDIL), were arrested by the Economic Offences Wing of the Mumbai Police on Thursday.
The Wadhawans were named in a police complaint that also accused the bank's management of concealing non-performing assets and disbursing loans to HDIL leading to a loss of at least Rs 4,300 crore, in the latest banking fraud case to spook the country's depositors and investors.
According to the complaint, HDIL and its group companies were the beneficiaries of 44 loans crore or 73 per cent of PMC's total loan book size of Rs 8,880 crore - a mammoth violation of regulations which forbid banks from handing out such a large proportion of cash to one sector let alone a single firm.
This was done through more than 21,000 fictitious accounts, the complaint said. "The actual financial position of the bank was camouflaged, and the bank deceptively reflected a rosy picture of its financial parameters," it said.
The complaint alleges that the PMC officials 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.
Besides Rakesh Wadhawan and Sarang Wadhawan, the complaint named the bank's Chairman Waryam Singh and its Managing Director Joy Thomas, along with other bank officials, and accused them of criminal breach of trust, forgery and falsification of records.
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.
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.
Enforcing restrictions on the bank, the RBI also informed depositors that they can only withdraw a maximum of Rs 10,000 from their PMC accounts over the next six months, triggering panic and anger among customers many of whom have all their savings in the bank. The limit was raised to Rs 25,000 on Thursday.
In a letter written by Joy Thomas to the RBI that allegedly blew the lid off the scam, he says that he oversaw the fraud and hid details from the regulator for fear of reputational risks to the bank.
(With inputs from agencies)