Recently a big scam took place in Punjab and Maharashtra Co-operative Bank (PMC) which is not a new thing now for India as there are many other similar instances happened in past like Nirav Modi PNB Scam, Vijay Mallaya UB Group and the list is huge. The accounts of these Corporate have turned NPA due to one or the other reasons.

At the outset we should first understand the term ‘NPA’ 

‘NPA’ stands for  Non-Performing Assets of a bank or financial institution on which either the Interest or Principal remains due for more than 90 days. They are termed as Non-Performing because the bank has stopped earning any revenue on such accounts and hence are classified as bad loans in their balance sheets. 

It is also to be understood the reasons for NPA as whether it is due to falsification of books or genuine business failure.

But the question here is that why should General Public face the heat without any fault..? 

Let us understands the same.. 

The principal business of a bank is to do lending and borrowing and they borrows  mostly from Public in the form of our deposits with the bank. And it is very saddened that the money of Public stuck in to such bad loans. 

Either it is a Public Sector Bank or a Private Sector Bank doesn’t matters because first it is a Public Institution of supreme national importance and they should not be allowed to put the Public money at risk for their failures.

There is no doubt that banks can not stop lending but despite of various checks and balances by regulators how can this happen due to which public faces the heat. In past there have been instances of stock market crash due to bank’s failures.

The Latest PMC Case

As per the media reports the PMC Bank has extended substantial part of its loans to a single Company HDIL (Housing Development and Infrastructure Limited) a real estate company  which is itself in a bad condition. As the bank is not very large the extension of such huge proportion of credit facilities to a single borrower is under question. It has been reported that the top management has siphoned off the public funds to this Company to favor their personal interests.

They allowed opening of around 21000 dummy accounts to disburse the loans to a single customer of the bank i.e HDIL.

The enforcement agencies have seized the assets of HDIL and has arrested some top executives. The bank has violated several norms including limit of exposure to a single party.

But the ultimate sufferer are the small deposit holders holding their accounts in the bank who cannot withdraw their own money for no mistake of their own.

The bank’s management  played  a role in hiding the NPA accounts and actual exposure to HDIL through window dressing of its books and creation of bogus accounts.


As per media reports the scam was exposed by some whistle-blower(s) who reported certain manipulations in the books of bank to the RBI. Thereafter RBI suspended management  and  appointed administrators to look after the affairs of the bank .

RBI also imposed restrictions on withdrawal of cash by the holders. A thing to note is that there were huge withdrawals  in the accounts just before the restriction imposed by RBI. Initially the limit was Rs 1000 Per  Account  later on the limit was increased  to Rs 40000 due to public pressure.


The question here is that PMC is regulated by both the Registrar of Co-operative  Societies and RBI. A bank is an institution that has strict checks at every level but despite the fact this happened. This is a question..?


As per the extant guidelines every depositor in the bank is insured up to a maximum amount of Rs 1 lacs only clubbing all his deposits whether Savings, Term Deposit, etc.

The limit is per bank and not per branch meaning all the deposits held under any branch of a bank is insured up to Rs 1 lacs only under DICGC (Deposit Insurance and Credit Guarantee Corporation) a subsidiary of RBI.

The only way to mitigate the risk is to put the funds in multiple banks up to Rs 1 lacs per bank to avoid any financial loss.

CONCLUSION-The failure of a banking institution is in itself a big question mark but what more saddened is that the account holders bears the actual loss as they cannot withdraw their own hard earned money which lies stuck in these financial scams. The regulators must understand their feelings and hardships faced by the Common Man.

There is a need for ethical banking instead of Phone Banking which some unethical businesses and banks do. These kind of scams should be curtailed if the regulators have to maintain the people trust in the banking system which is the founding stone of any economy. An Institution in itself is not bad only the people running it are good or bad and as such an institution is represented by its people.

As we can not clap with a single hand similarly it is the need of the hour to strengthen the Corporate governance Practices of the borrowers as well.

The Author CS Himanshu Goyal may be contacted at

DISCLAIMER: Absolute care is taken to prepare this article however inadvertently if any errors occur then neither the author nor publisher shall be held responsible for any such cause. The purpose is to spread awareness and it shall not be construed as rendering of any Professional advice. Further the content is an original work of the author and it should not be used for any commercial purpose. The author extends his thanks to the readers of this article.



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Qualification: CS
Company: Paisa Lawgic
Location: Delhi, New Delhi, IN
Member Since: 23 Oct 2019 | Total Posts: 15
A Company Secretary and a Post Graduate in financial administration having working hands in Investment Banking, Manufacturing Sector and Company Secretarial Practice. View Full Profile

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  1. Praveen garud says:

    i feel that in future there should be secreterial audit at least for the banks. Whether proper approvals are taken while giving loans, what percentage /amount of banks funds are given to a single customer . There should be report on the riskiness of the banks operation. This should mitigate the frauds in future

  2. Stan Alvares says:

    One thing I am trying to understand understand and would like your opinion is that, if the RBI had checked the proportion of total yearly interest-income to total book loans disbursed by the bank would it have been able to smell the fraud.


    I personally feel that there should be a regulation in place to ensure that no one individual or institution gets more than a specified percentage, say about 3%, of the funds available. RBI should cross check the KYC to ensure no bogus accounts.Board of Directors should pledge their assets to the Government before accepting the appointment


    I feel it will be in order if a regulation is put in place not to lend more than 3% of the actual funds available to any one individual/institution. The KYC check should be double checked by RBI before an account is opened to avoid bogus accounts; some institution must be able to check regularly about the credibility of borrowers, account holders directors etc.. Insurance on Deposits to be increased and the Board members must pledge their assets to the Government before taking up their task.

    1. HimanshuGoyal says:

      Really appreciate your views the Corporate Governance of the banks as well as the borrowers needs to be enhanced at the same time implementation of rules be monitored. In India we have laws in force but the actual problem lies in its ineffective implementation. Rules are in place to put cap on lending to single borrowers but the regulators has to decide whether it needs to be curtailed or monitored effectively on ground level.
      And yes insurance amount should be increased or alternatives be formulated.

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November 2020