Every now and then, a major financial scandal resurfaces in headlines not because it’s unique, but because it’s painfully familiar. Fraudulent accounting, underreported exposures, and regulatory gaps are recurring patterns we’ve all seen before. But the bigger question is: why do they keep happening?
A recent report revealed how PMC bank officials managed to project profitability for years, while their asset base quietly crumbled. This wasn’t just a case of financial fraud it was a blueprint of what happens when due diligence is delayed, and regulatory signals are ignored.
What Happened?
PMC Bank officials:
- Avoided declaring several accounts as Non-Performing Assets (NPAs) for years,
- Manipulated financial records to project misleading profitability,
- Overstated income through interest overbooking, and
- Concealed risky exposures, particularly linked to one corporate group.
One account, for example, remained an NPA since 1998 yet wasn’t reported until 2019. In total, dozens of such accounts were found to have been irregular for years.
The result? Thousands of depositors were affected, and trust in cooperative banking took a serious hit.
Why did this happen?
A critical failure lies at the heart of the matter: the erosion of internal controls and early-warning systems.
While regulations existed, the safeguards were circumvented. The absence of ongoing, independent risk monitoring meant issues were detected only after external intervention by the Reserve Bank of India.
This is where proactive due diligence comes in not just at the point of onboarding, but as a living, breathing function within an organisation.
The Role of Due Diligence
In a world where financial data can be engineered to pass audits, traditional methods of risk review are no longer sufficient. Due diligence must evolve to:
- Continuously monitor borrower behaviour and patterns,
- Detect linked exposures through forensic and digital trails,
- Verify claims using multi-source intelligence, and
- Serve as a strategic lens, not just a compliance formality.
Had there been a system of continuous due diligence, red flags like repeated delays in interest payments or interlinked accounts could have been flagged much earlier.
What can Institutions Learn?
➡️ Governance is not a checkbox. It’s a mindset, supported by systems and culture.
➡️ Transparency is a strength. Even uncomfortable data must be surfaced.
➡️ Due diligence is a lifecycle function. Not a one-time step.
➡️ Technology should enhance visibility, not obscure it.
➡️ Training matters. Frontline staff must be trained to recognise and report anomalies.
Audit the Assumptions
Cases like this highlight the need for multi-layered risk intelligence beyond financial ratios. At IIRIS, we approach risk not as a static number but as a dynamic, evolving profile. Whether it’s through advisory design, forensic due diligence, or digital risk solutions, the goal is the same:
Build systems where risk is detected early, trust is protected, and institutions stay resilient.
Want to explore how proactive due diligence can protect your organisation?
Reach out to our experts at contactus@iirisconsulting.com.
