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Home / Industry / Banking /  PMC Bank’s loans to troubled realty firm HDIL under the lens

Mumbai: The Reserve Bank of India (RBI) is examining all large loans made by Punjab and Maharashtra Cooperative Bank (PMC), including to troubled real estate group Housing Development Infrastructure Ltd (HDIL), a person aware of the matter said, a day after the banking regulator put restrictions on the multistate cooperative bank.

If PMC Bank is found to have substantial exposure to the developer, which is currently in bankruptcy court, it would be the latest in a long line of financial institutions— after Dewan Housing Finance Corp. Ltd, Altico Capital and other non-banking financial companies—to be scalded by the problems in the property market. According to Bloomberg data, HDIL had outstanding dues of 1,996.9 crore to its lenders as on 31 March. Another person, who also did not want to be named, said PMC’s exposure to HDIL is around 400 crore.

Information from a Bank of India letter to HDIL, as well as the FY18 annual report of HDIL, indicate PMC Bank’s transactions with the troubled builder.

Bank of India was among lenders that initiated bankruptcy proceedings against HDIL before the Mumbai bench of the National Company Law Tribunal (NCLT) last year. However, the two parties arrived at a settlement in September 2018, under which the builder agreed to repay the bank in instalments and clear all dues by August 2019, following which the bank withdrew from the bankruptcy proceedings.

However, HDIL could not meet the deadline and on 20 August, the Mumbai bench of NCLT admitted Bank of India’s fresh insolvency petition against HDIL for failing to repay 522.3 crore. HDIL then made a one-time settlement offer to Bank of India, and Bank of India’s treasury department wrote to HDIL promoter Sarang Wadhawan on 31 August that it has received pay orders of 96.5 crore drawn on PMC Bank by the promoter as part of the one-time settlement. The letter said Bank of India is reviewing the one-time settlement proposal. The bank also wrote in the letter that it agreed to keep ongoing procedures under the Insolvency and Bankruptcy Code on hold for two weeks, and look into the settlement proposal.

HDIL promoter Rakesh Wadhawan challenged the NCLT order admitting the bankruptcy plea in the National Company Law Appellate Tribunal (NCLAT), and the tribunal on 3 September stayed the formation of the committee of creditors till 26 September. The Bank of India letter is annexed in the NCLAT order.

HDIL’s FY18 balance sheet shows it secured a loan from PMC Bank carrying 13% interest rate, secured by pledging fixed deposit receipts. HDIL owns 190,000 shares of the bank and 93,957 shares in Dreams The Mall Co. Ltd, which owns the building housing PMC Bank’s head office.

Joy Thomas, managing director of PMC Bank, told CNBC TV18 on Wednesday that the bank has lent to HDIL Group and the exposure is not restricted to one firm. He said RBI has put restrictions on the bank due to divergence in bad loan reporting. Divergence in bad loan reporting arises when RBI and the bank differ on the quantum of such loans.

RBI on Tuesday put restrictions on PMC Bank, amid a probe into accounting lapses. Cash withdrawals were capped at 1,000 per account, spreading panic among depositors.

PMC Bank has also been barred from making fresh loans and taking deposits. The restrictions under Section 35A of the Banking Regulation Act are aimed at preventing a run on the bank that could end up endangering the stability of the entire financial system because of a contagion effect.

Mint reported on 24 September that gross under-reporting of bad loans is one of the reasons for the curbs on PMC Bank and the regulator is looking into its books.

Bidya Sapam contributed to this story.


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