India arrested the head of a bankrupt realty company on Thursday after lender Punjab and Maharashtra Co-operative Bank (PMC) accused executives of partaking in a "criminal conspiracy" involving forged audit reports that cost the bank some 43.55 billion rupees ($616.5 million).
In the latest case to roil India's banking sector, PMC made a police complaint accusing its own executives and officials at Housing Development and Infrastructure Limited (HDIL) of misleading the Reserve Bank of India (RBI) from 2008 to August 2019 by forging the audits to hide the fact that big accounts had become non-performing assets.
The RBI last week took charge of the bank and suspended Managing Director Joy Thomas and the bank's board after uncovering lending irregularities. PMC has been barred from renewing, or granting any loans, or making investments without the RBI's prior approval.
Depositors have been informed they can only withdraw a maximum of 10,000 rupees ($140) from their PMC accounts over the next six months. On Tuesday, dozens of account holders gathered outside an RBI office in Mumbai to protest against the curbs and demand that the central bank and government intervene to release their funds.
On Thursday evening, the Economic Offences Wing (EOW) of Mumbai Police arrested HDIL's chairman Rakesh Kumar Wadhawan as well as his son Sarang Wadhawan, the bank's vice chairman, Mumbai Police spokesperson Pranaya Ashok told Reuters. He declined to provide information about the charges against them.
Reuters was not immediately able to contact the two Wadhawans. HDIL did not immediately respond to a request for comment.
In the past two years, India's troubled banking sector has been rocked by a multibillion-dollar fraud at a state-run lender, the collapse of a major infrastructure lender, bad loan issues at state-run banks and a liquidity squeeze that has hit shadow lenders.
Indian media outlets on Sunday reported that PMC's exposure to HDIL stood at 65 billion rupees, which accounts for 73% of its overall 88.8 billion loan book. That is well above the RBI's permissible exposure levels to a single entity.
PMC could not immediately be reached for comment on the estimate.
More than two dozen co-operative banks are now under RBI administration. PMC, among the top five co-operative banks in the country with deposits of 116.2 billion rupees as of March 31, is by far the largest.
India has more than 1,500 small urban co-operative banks that typically service small local communities in certain districts or states. Depositors at co-operative banks are in a relatively higher risk zone, but tens of thousands still bank with these lenders as they typically offer better interest rates on deposits.