There are many scams and frauds are considered in the Banking Sector. Once again, along with the Top Management role of Auditors is being investigated for PMC bank fraud. In this blog, we have discussed in brief what exactly happened in the case of Punjab and Maharashtra Cooperative Bank (PMC) fraud and how Auditor’s involved, what is the role of the auditor in the fraud. We also discuss in brief about the report shared by the Auditors, the investigation is taken to justify the fraud and the actions taken for the suspected caught. So give it a read.

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About PMC Bank and its Fraud

Punjab and Maharashtra Cooperative (PMC) Bank fraud

Punjab and Maharashtra Cooperative Bank is a Scheduled Commercial bank situated in 6 states of the country and has a vast network of 137 branches across six states. This Bank has total deposits of about Rs 11,617.34 crore. It is regulated by the Reserve Bank of India and registered under the Cooperative Societies Act. It is one of the profitable co-operative banks in India and had earned a total revenue of ₹1,297 crores (US$188 million) and profits of ₹99.69 crores (US$14 million) in the financial year 2019.

The crux of this bank fraud is that the higher management of the Punjab and Maharashtra Cooperative Bank has given massive loan to the Housing Development and Infrastructure Ltd (HDIL) and its group entities. This fraud case is related to the transfer of 70% of the total credit facilities of the PMC bank to HDIL and its associated companies. HDIL’s business focuses on Real Estate Development.

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Who is HDIL?

HDIL (Housing Development and Infrastructure Limited) is a listed real estate development company in India, with significant operations in the Mumbai Metropolitan Region. HDIL’s business focuses on Real Estate Development, including construction and development of residential projects and, more recently, commercial and retail projects, Slum Rehabilitation and Development, including clearing slum land and rehousing slum dwellers, and Land Development, including the development of infrastructure on land which the company then sells to other property developers.

Detail of the Punjab and Maharashtra Cooperative Bank (PMC) Fraud

Punjab and Maharashtra Cooperative (PMC) Bank fraud

Punjab and Maharashtra Cooperative Bank (PMC) replaced 44 loan accounts of the HDIL group with over 21,000 fictitious loan accounts. The Economic Offences Wings of city police disclosed the information while seeking custody of chairman and managing director of Housing Development and Infrastructure Ltd (HDIL) Rakesh Wadhawan and his son Sarang.

The role of Chairman of Punjab and Maharashtra Cooperative Bank is also investigated. Mr Waryam Singh got appointed as the chairman of PMC Bank in January 2015 for five years. It was, in fact, Singh’s second term as the chairman of PMC Bank. He had held the office previously from 1999 to 2005 and held 1.91 per cent stake in HDIL till 2017, which is a clear violation of the law.

Result of Investigation by ED

The now-suspended managing director of the crisis-hit Punjab and Maharashtra Cooperative Bank, Joy Thomas, has admitted to the Reserve Bank of India (RBI) that the Bank’s actual exposure to the bankrupt Housing Development and Infrastructure (HDIL) is over Rs 6,500 crore. It is four times the regulatory cap or a whopping 73 per cent of its entire assets of Rs 8,880 crore.

As per 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. Thus, PMC’s exposure to HDIL is almost four-times of what RBI mandates. Thomas has also put the actual NPA number at 60-70 per cent as against a reported net NPA of 2.19 per cent as of March 31, 2019.

Auditor’s Role in Punjab and Maharashtra Cooperative Bank fraud

Auditors of the Fraud hit Punjab and Maharashtra Cooperative (PMC) Bank has issued a clean report for FY 2018-19. It clearly shows negligence in performing the duties on the part of auditors as the result of investigation shows that more than 70% of the Total Credit Facilities were given to just one lender for which 21000 fake loan accounts were created to hide the amount. The new loan was given to the lender despite the lender’s failure to repay the instalments of the loans granted earlier.

Report on Other Legal and Regulatory Requirements Extracted from Independent Auditor’s Report FY 2018-2019

Few points worth noting from the Auditor’s Report are as under:

  • During the course of our audit, we have generally not come across transactions which appear to be contrary to the provisions of the Act, the Rules or the Bye-Laws of the Bank.
  • During the course of our audit, we have not come across material and significant transactions which appear to be contrary to the guidelines issued by the Reserve Bank of India and National Agriculture and Rural Development Bank.
  • The following monies due to the Bank appear to be doubtful of recovery against which a provision of 2,681.77 Lakhs made in the accounts. (Advances categorized as doubtful and loss assets as per prudential norms considered as questionable of recovery).
  • During the audit, it generally not come across any violations of guidelines, conditions etc. issued by the Reserve Bank of India (RBI) and National Agriculture and Rural Development Bank.

So, this means Statutory auditors failed to highlight serious violations of RBI guidelines and underreporting of amount doubtful of recovery since the amount suspicious of recovery was much more than the amount reported in the Auditor’s report. The auditors of PMC Bank will reportedly also be scrutinized as they did not classify loans to HDIL as non-performing assets (NPA) as per RBI guidelines despite multiple payment defaults on the company’s part.

Investigation Taken on the Punjab and Maharashtra Cooperative Bank fraud

All the above-stated points are a matter of investigation. The city Economic Offences Wing (EOW), probing The Punjab and Maharashtra Cooperative Bank’s Rs 6,500-crore loan fraud, arrested two auditors of the Bank for negligence and flouting norms in the audit process. The two chartered accountants, Jayesh Shah and Ketan Lakdawala, would be produced before the Esplanade court for remand.

As per the officer during the investigation, they have found negligence on the part of the auditors. Besides, they have also found that the procedure for the statutory auditors’ appointment was not followed and they got more fees than prescribed.

Further EOW has also arrested Concurrent Auditor of Punjab and Maharashtra Cooperative Bank. Anita Kirdat (35), a ‘concurrent auditor’ of the Bank, was arrested. Her responsibility was to ensure a “systematic and timely examination” of the Bank’s financial transactions. Kirdat audited the Bank’s transactions monthly, but allegedly could not or did not point out irregularities in its processes. She was called for questioning and later arrested.

Author’s Views on the Role of Auditor’s and RBI

Ideally, statutory auditors must look through accounts in a more detailed manner irrespective of the size of operations to ensure there are no concerns and do not rule out action by the RBI. There is often massive pressure on auditors due to the growing size of businesses. Still, it is their responsibility as any negligence on the part of Auditor’s can bring huge losses to stakeholders and disrepute to the profession.

Parliament has passed the CA Act, 1949 along with NFRA, which contains a mechanism to punish errant Chartered Accountant member for any negligence in performing his duty. Chartered Accountant fills documents in the ordinary course of performing his professional task & he has no reason to doubt documents produced before him. There is a difference between Negligence and Fraud. Negligence does not involve criminal offence unless it is proved that it is deliberate action with an intention to deceive other person or act done to take undue advantage of the person/situation.

Any officer cannot arrest the Chartered Accountant just like that and spoil his carrier unless he can prove his fraudulent intention with proper evidence, which can stand in the court of law. A memorandum from ICAI should be sent to Home Ministry & Police Head Quarters of the Country as well as respective states including all IG, DM & SP regarding the proper process to be followed by the machinery before any FIR or Arrest of a Chartered Accountant. A respected person in the society should not be harassed by police & also not treated at par with criminals.


This is the overview of the Punjab and Maharashtra Cooperative Bank (PMC) fraud. We hope you like the article and also request to share it with your friends also. Also please share your views on the full report what you think in the comment section.