Why do Scams like Nirav Modi Happen with Indian Banks

Recently the Punjab National Bank suffered a loss of 11,400 crores after being defrauded or in simple words cheated by the biggest diamond merchant- Nirav Modi. The Nirav Modi scam is not the first fraudulent issue that has captured eyeballs and brought Indian banks in a state of distress or an unsuccessful pit due to the incredible loss of money and the inability for the retrieval of the loans granted to the wealthiest businessmen. But Why do Scams like Nirav Modi Happen with Indian Banks?

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Why do Scams like Nirav Modi Happen with Indian Banks

Another prominent case is the Vijay Mallya scam- who extended his breweries’ business for his son Siddharth Mallya’s eighteenth birthday disregarding several warnings from his assistants for suffering loss after which he linked the Kingfisher Airlines with the Deccan Airways. To fund the expenses of these airlines, Vijay Mallya ended up selling certain small companies and United Engineering, which were his ancestral properties. Due to Siddharth Mallya’s inability to handle the business and take it to rise like his father, the airlines could not fend well. This, in turn, backfired because to be able to extend the expenses Vijay Mallya ended up taking a loan from several Indian banks based on loyalty and goodwill and bought a good tonne of properties. The Indian banks without making the needful reality checks went ahead and granted the loans and limits were crossed when Vijay Mallya took help from the government by becoming a Rajya Sabha member though the support of Congress which ceased the banks from tracking him for repaying his debts. Vijay Mallya was also granted with a certificate which stated that he had the eligibility to ask for loans and also have them extended from not only one bank but from almost all banks of India. This took him to cloud nine, and he borrowed further money under the recommendations of Congress again and made full use of his power as a powerful business tycoon and a Rajya Sabha member. Thus, this led him into demanding more loans, and the IDBI bank under pressure was forced to lend a humongous ransom of 900 crores. This involved the trust of all the bank account holders and stakeholders who invested their money in the banks in hopes that it would be kept safe. The cycle kept going where he didn’t pay loans or got the deadlines increased until the ruling party changed to BJP and all the businessmen who were involved in the processes of making black money were either pledged guilty or asked to surrender. This was when Vijay Mallya fled before he could be held under custody and refused to return from London once it was verified that he was involved in one of the biggest scams the country has suffered. India underwent a loss of 900 crores, and several banks suffered massive losses or even shut down, for that matter.

Similarly, Nirav Modi involved the Punjab National Bank, mainly and several other banks along with the country and the share and account holders in a massive loss of 11,400 crores that succeeded the Vijay Mallya scam too. Kala Ghoda now is known as the epicentre of this major scandal where there once used to be a boutique of Nirav Modi. Nirav Modi fled to London with a huge debt he seems to have nothing to do with anymore, considering the fact that he started off with a new diamond business and lives in a 72 crore worth flat in London now. Nirav Modi too was issued with a certificate that held him eligible for having the permission to ask for loans from almost any bank in India. The passing on of this certificate allowed him to maintain his goodwill, image, and reputation throughout all the loan providing services in India and gained the total amount of 11400 crores. It was not very soon until he was caught for his scam after the government switched to the ruling party like BJP. London provided not only Vijay Mallya with absolute security but also Nirav Modi who was kept safe from his debt in India wherein the government could not forcefully claim Nirav Modi or Vijay Mallya to return. This, in turn, resulted in the banks losing trust from the clients, most account holders losing all their hard-earned money and drowning into the depth of liabilities that were very hard to be repaid or regained. Even though there are several cases pending against the fraudulent actions that shook the economy of India because of these massive business tycoons, there is barely anything that can be done to retrieve the deserved amount.

Why do Scams like Nirav Modi Happen with Indian Banks?

The leading cause for Indian banks suffering through such major frauds is the issues that are caused due to the lack of reality checks that are done with the customer who desires to ask for a loan. Most of the customers are provided with commendable services solely due to fame and goodwill, which is why they fail to look into the practical details. The rules are not stringent enough when it comes to granting loans to a public figure, whereas a common man, who does genuinely promise to repay the loan, is troubled and asked for more information than required. These were just the small loopholes in the loan lending process, but the major problem is that these business tycoons, public figures and the celebrities that have gained considerable goodwill are the ones who refrain from investing their money in the Indian banks. They prefer depositing their money in international banks like the World and Swiss bank, which gain vast amounts of profit and money to extend loans. But when it comes to borrowing loans, the same business tycoons try to seek help from Indian banks who do not hold an account of the regarded person and still have to advance loans due to pressure. The money invested remains with international banks profiting them, whereas the Indian banks suffer high losses once the loan is refused to be paid. Since the money invested is in an international bank, the national bank cannot even take the money back as an asset because it is not permissible. Hence, Indian banks end up suffering high losses without having sufficient funds to fulfil it.

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