Reserve Bank of India Governor Shaktikanta Das. Photo: AFP

The Indian central bank governor said the situation at scam-hit Punjab & Maharashtra Cooperative Bank was being monitored after the problems there left nearly 1.6 million customers in the lurch.

Reserve Bank of India Governor Shaktikanta Das said a forensic audit was underway and the bank had been placed under the central bank administrator for six months due to the massive under-reporting of bad loans.

When the central bank puts a bank under its directions, it practically takes over the bank’s operations. The bank’s management is superseded and the board is dissolved. This happens when the regulator is not satisfied with the bank’s functioning and takes steps to safeguard the interests of borrowers.

The cooperative bank had 138 branches spread over seven states and its headquarters was in Mumbai. Its depositors were small-time businessmen and working professionals.

The alleged irregularities are to the tune of 43.55 billion rupees (US$633 million). The bank had diverted a major chunk of its funds (80 billion rupees) to Housing Funds and Infrastructure Limited, which went bust a few months ago.

The collapse of this infrastructure company had a domino effect on various banks and shadow banks, but Punjab & Maharashtra Cooperative Bank was the worst affected, as nearly 70% of its funds were with this failed company, with whom it has been doing business since 1989.

Five people, including promoters of the infrastructure company Rakesh and Sarang Wadhwan, have been arrested.

Several protests have been held by depositors in Mumbai and other towns, including Delhi. At least 10 depositors have died since the alleged scam came to light, as most of them could not withdraw money for medical emergencies.

The central bank had imposed curbs on withdrawals, which initially was a paltry sum of 1,000 rupees and later enhanced to 50,000.

Over the years the bank had window dressed its accounts in such a way that neither the statutory auditors nor the periodical scrutiny by the Reserve Bank were able to detect the bank’s murky links with the infrastructure company.

Business website Moneylife revealed that the Reserve Bank of India, during its inspection in 2014-15, failed to find that Housing Funds and Infrastructure accounted for more than half the bank’s business and had turned it into its captive bank.

Political fallout

This scam acquired political overtones because many directors on the lender’s board have ties to the ruling Bharatiya Janata Party. The political uncertainty in the state of Maharashtra, where Mumbai is located, after the recent election made matters worse. No political coalition has been able to form a government so far.

When a group of angry customers recently met Indian Finance Minister Nirmala Sitharaman, she told them she would talk to the Reserve Bank governor and convey their distress. She also said the Ministry of Finance may not have anything to do with it directly because the RBI was the regulator.

The opposition Congress party has attacked the government for indifference on this issue. They demanded the government come up with a white paper on the Punjab and Maharashtra Cooperative Bank scam.

Join the Conversation


  1. Hi would you mind stating which blog platform you’re using?
    I’m looking to start my own blog soon but I’m having
    a difficult time making a decision between BlogEngine/Wordpress/B2evolution and Drupal.
    The reason I ask is because your design and style seems different then most blogs and I’m
    looking for something completely unique. P.S
    Sorry for getting off-topic but I had to ask!

  2. Very nice post. I just stumbled upon your weblog and wanted to say
    that I’ve truly enjoyed browsing your blog posts. After all
    I will be subscribing to your feed and I hope you write again soon!

  3. I don’t even know the way I stopped up right
    here, but I thought this put up used to be good.

    I don’t recognize who you might be however definitely you are going
    to a famous blogger when you aren’t already. Cheers!

  4. When someone writes an paragraph he/she maintains the plan of a user in his/her mind that how a
    user can be aware of it. Thus that’s why this piece of writing is perfect.

  5. I am no longer certain the place you are getting your info,
    but great topic. I needs to spend some time learning more or working out more.
    Thank you for great info I used to be looking for this info for my mission.

  6. I loved as much as you’ll receive carried
    out right here. The sketch is attractive, your authored subject matter stylish.

    nonetheless, you command get bought an impatience over that you wish
    be delivering the following. unwell unquestionably come more formerly again since exactly
    the same nearly very often inside case you shield this hike.

  7. Wonderful blog! I found it while browsing on Yahoo News.
    Do you have any suggestions on how to get listed in Yahoo News?
    I’ve been trying for a while but I never seem to get
    there! Appreciate it

  8. We stumbled over here different page and thought I may as well
    check things out. I like what I see so now i am following you.
    Look forward to exploring your web page for a second time.

  9. I just like the valuable information you provide to your articles.

    I’ll bookmark your blog and take a look at once more right here frequently.
    I’m relatively certain I will learn plenty of new stuff
    proper right here! Best of luck for the following!

Leave a comment