Joy Thomas reveals how PMC hid bad loans

PMC Bank was able to dupe regulators about its growing exposure to a single property developer for at least a decade before the firm filed for insolvency, according to a letter written by its managing director, who has since been removed.

Punjab & Maharashtra Co-operative Bank Ltd used “dummy accounts” and other methods to hide its oversized loans to Housing Development & Infrastructure Ltd. from the Reserve Bank of India, Joy Thomas wrote in the letter.

“Every year during the course of RBI inspection we undergo into a lot of stress due to concealment of information from RBI,” Thomas wrote in his letter dated Sept. 21 and addressed to a senior supervisory official at the central bank. He said he also hid the true exposure from the PMC board and the bank’s auditors.
PMC is one of some 97,000 cooperative lend-ers, which hold a combined $130 billion of deposits, according to CLSA— nearly a tenth of the wider industry’s total.

Among that plethora of lenders, only the 54 biggest are monitored by the RBI and investors are now trying to figure out whether they pose a new threat to a banking system hobbled by a 9.3 per cent bad-loan ratio, the highest in the world.

Thomas said he stopped reporting to the RBI on the bank’s large exposures from 2008 “because of reputational risk.” By 2011, the exposure to HDIL stood at Rs 1,020 crore ($144 million), or more than half the bank’s total advances of Rs 2,000 crore.

Had the bank classified the assets as non-performing, “we would have had to stop charging interest on these accounts and we could have made losses,” Thomas said. “The growth path of the bank would have got hampered.” Prior to 2015, PMC was able to conceal its HDIL exposure because RBI officers would only inspect a few of the largest borrower accounts, Thomas wrote. When the RBI started to ask for more details in 2017 “the stressed legacy accounts belonging to this group were replaced with dummy accounts to match the outstanding balances in the balance sheet,” he said.

HDIL said it has sought a meeting with the PMC administrator to “put forth the true and correct picture.”