Former Punjab Maharashtra Co-operative Bank Managing Director Joy Thomas last month admitted to misleading the Reserve Bank of India for the last six or seven years, by concealing and misreporting default on loans worth Rs 6,500 crore taken by crisis-hit real estate firm Housing Development and Infrastructure Ltd, NDTV reported on Tuesday. Thomas has been suspended from his post.

The Economic Offences Wing of the Mumbai Police filed a first information report against officials of PMC Bank and realty developer HDIL last month, for loan default reportedly up to Rs 4,300 crore. A special investigation team has been set up to conduct an inquiry into the case. The investigators have filed a case for cheating, criminal breach of trust, forgery, and criminal conspiracy under the Indian Penal Code against the bank’s Chairperson Waryam Singh and Thomas.

The PMC Bank managing director wrote a letter of confession to the RBI on September 21, saying that the facts were misreported due to “fear of reputational loss”. “As the loans outstanding were huge and if these were classified as non-performing assets it would have affected the profitability of the bank... this would have created reputation risk for the bank,” Thomas wrote. “As the HDIL group had a good record of clearing dues with certain delays we continued to report all the accounts as standard accounts.”

“Though some of the accounts were not performing well, it was not brought to the notice of the board... subsequent overdues of various loans were also not reported... concealment of information from board, auditors and regulators was due to the fear of reputational loss,” the letter read.

The letter added that in connection with the land business of HDIL, the group’s accounts were overdrawn and the dues then cleared in time. “In the process, our bank used to charge 18% to 24% interest and earned very good profit,” it said.

The letter said that the RBI began to ask for details from PMC Bank in 2017. Following this, stressed legacy accounts belonging to the HDIL group were replaced with dummy accounts, Thomas added. The PMC Bank’s exposure to HDIL is nearly 73% of its total loan size of Rs 8,880 crore as of September 19, PTI reported, citing unidentified sources.

Thomas took full responsibility for the “granting of overdrawals”. “The executives had no role in allowing overdrawals... they were doing it as per my instructions,” he said.

However, the former managing director claimed that what had happened was not a fraud. “Whatever has happened is not a fraud, nobody has run away with the money without providing security, it is a technical matter which could have been managed better,” he said. Thomas also accused the RBI of failing to manage the situation.

‘Loans taken in normal course of business’: HDIL

Meanwhile, HDIL said on Tuesday that loans taken from banks including PMC Bank were in the normal course of business, after providing adequate security cover, PTI reported. The group said it was ready to start discussions with PMC Bank to protect the interest of depositors.

The real estate firm, replying to queries by stock exchanges, added that its books of accounts have been audited and reflect a true and fair picture of its business.

HDIL Vice Chairperson and Managing Director Sarang Wadhawan said the company is facing temporary cash flow problems due to a slowdown in the real estate sector. The firm has thus been admitted under the Insolvency and Bankruptcy Code, but is “actively attempting” to resolve the problem, Wadhawan said.

Wadhawan added that he is not aware of any proceedings against HDIL. “HDIL has been made aware of certain regulatory actions against PMC Bank and its management,” he said. “It is also learnt that certain action is being initiated against HDIL and its promoters. We are unaware of any action against HDIL and its promoter.”

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