PMC Bank fraud: Police likely to probe HDIL auditors

The Economic Offences Wing (EOW) of Mumbai Police is likely to investigate the auditors of Housing Development and Infrastructure Limited (HDIL) in connection with the Rs 4,300 crore Punjab and Maharashtra Co-operative (PMC) Bank Ltd scam.
 
Top directors in HDIL, which has been at the centre of the scam, have already been arrested, but now the findings of the auditors in financial reports will be scrutinised as part of the investigations, according to a report on the Livemint website.
 
Two people aware of the matter told the publication that the EOW is likely to question the auditors of HDIL but added that the priority of the special investigative unit of Mumbai Police is to interrogate and extract information from those arrested.
 
Mumbai-based chartered accountant firm Rajeswari and Associates was the legal auditor of HDIL.
 
An auditor is expected to ensure the company does not violate any financial norms and adheres to all accounting principles. However, auditors validate a company's financials based on information provided by the client company. The report is then submitted to shareholders and the board for risk assessment.
 
The auditors of PMC Bank will also be scrutinised as they did not classify loans to HDIL as non-performing assets (NPA) despite multiple payment defaults.
 
The Reserve Bank of India (RBI) has a clear mandate for such cases, that banks must make a provision for the losses. PMC Bank's cash reserve at around Rs 1,000 crore is much lower than the loan given to HDIL.
 
The PMC Bank fraud came to light just a day after the RBI imposed strict restrictions on the lender. Former managing director of the bank, Joy Thomas, wrote a letter to RBI, detailing the chain of events which led to the bank's Rs 6,500 crore exposure to HDIL.
 
This amount is four times the regulatory cap or at least 73 per cent of PMC Bank's entire asset pool of Rs 8,880 crore.
 
The EOW has also arrested HDIL promoters Rakesh Wadhawan and his son Sarang Wadhawan on charges of involvement in fraudulent activities. Joy Thomas and former PMC Bank chairman Waryam Singh have also been arrested.


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