by Punjab and Maharashtra Cooperative Bank was established in 1984 and grew into one of India’s top 10 urban cooperative banks. It had over 137 branches across 6 states and served thousands of depositors. The bank catered to both retail and institutional clients and had earned trust over the years through its aggressive growth and high deposit interest rates. By 2019, it had deposits worth over ₹11,000 crore and a loan book exceeding ₹8,000 crore.
Discovery of Financial Irregularities
In September 2019, the Reserve Bank of India (RBI) imposed operational restrictions on PMC Bank after uncovering a ₹6,500+ crore scam, where the bank fraudulently hid and underreported its bad loans. The fraud came to light when a whistleblower informed RBI about the misreporting of loan exposures to a bankrupt real estate firm – Housing Development and Infrastructure Ltd. (HDIL).
Undisclosed Exposure to HDIL
PMC Bank had illegally lent over 73% of its total loan book (~₹6,226 crore) to HDIL and related entities, which had already been declared bankrupt. Bank officials used 21,000 fake accounts to hide the bad loans from regulators and auditors. These dummy accounts masked non-performing assets (NPAs), giving the illusion of a healthy loan portfolio.
Management’s Role in the Scam
Top executives at PMC Bank, including the Managing Director Joy Thomas and Chairman Waryam Singh, were directly involved in sanctioning and hiding loans to HDIL. Internal systems and software were manipulated to conceal the real numbers from auditors and the RBI. The auditors also failed to detect the deception, pointing to lapses in checks and balances.
RBI’s Immediate Action
On 23rd September 2019, RBI put PMC Bank under Section 35A of the Banking Regulation Act, restricting withdrawals for depositors initially to ₹1,000, later increased in phases. The bank was not allowed to offer new loans or renew existing ones, and the Board of Directors was superseded. An administrator was appointed to manage the crisis.
Public Outcry and Depositor Hardship
The sudden restrictions caused widespread panic among account holders. Many customers had life savings in the bank and couldn’t access funds for medical emergencies, education, or business needs. Emotional distress led to several deaths reportedly due to shock or suicide, highlighting the deep financial and psychological impact on the common public.
Legal and Investigative Proceedings
The Mumbai Police’s Economic Offences Wing (EOW) and Enforcement Directorate (ED) launched investigations. Multiple arrests were made, including PMC officials and HDIL promoters Rakesh and Sarang Wadhawan. ED attached HDIL’s properties worth crores under the Prevention of Money Laundering Act (PMLA). Investigations revealed that PMC gave loans despite HDIL defaulting on repayments for years.
Loopholes in Cooperative Banking Regulation
The crisis exposed serious regulatory gaps in India’s dual control structure over cooperative banks – RBI oversees banking operations, while state governments regulate administration. PMC operated with weak internal controls, and regulatory supervision was inadequate. The case led to demands for comprehensive reform in cooperative banking regulation, especially on audit and oversight.
RBI’s Corrective Measures and Policy Changes
Post-PMC crisis, the RBI and government took various steps:
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Amended Banking Regulation Act (2020) to bring cooperative banks under stricter RBI control.
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Enhanced guidelines on audit quality and loan exposure limits.
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Issued advisories on whistleblower mechanisms and stricter internal audits to detect frauds early.
Resolution Through Merging with Unity Small Finance Bank:
In November 2021, the RBI approved the merger of PMC Bank with Unity Small Finance Bank (USFB), backed by Centrum Group and BharatPe. Under the resolution plan:
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Depositors were to receive back their full deposits in a staggered manner.
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Unity took over assets and liabilities, with the goal to revive operations and restore trust.
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Large depositors had to wait longer, while smaller depositors got quicker access.
Impact on Banking Sector and Financial Confidence:
The PMC Bank debacle led to loss of public confidence in cooperative banks. Even strong urban cooperative banks saw withdrawal pressures. The crisis triggered debates around:
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Deposit insurance coverage (enhanced later to ₹5 lakh).
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Need for timely financial disclosures and audits.
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Greater oversight on urban cooperative banks to protect depositors.
Lessons Learnt and Way Forward:
The PMC crisis taught regulators, banks, and customers several lessons:
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Importance of transparency in reporting loan exposures.
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Need for robust governance and accountability mechanisms.
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Strengthening whistleblower protection and digital monitoring systems.
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Depositors also became more aware of risks associated with high-return promises.
The crisis pushed RBI and the government to tighten norms for the cooperative banking sector and enhance trust in India’s financial system.
