Bank-Loot-Run!

Our country is now reeling under the shock of one more Bank scam. This time the loot is still bigger......a whopping sum of 11,400 crores. Once again the modus operandi is the same.....'Bank-Loot-Run'!

Nirav Modi scam is neither the first nor the last of the financial scams.  In fact frauds and scams are as old as mankind!

Ancient Greek King Heiro II got made his golden crown.  But he had a doubt that the goldsmith might have done a fraud by mixing the inferior copper.  He asked his scientist scholar Archimedes to find out.  Archimedes then discovered that every irregular object (in this case crown) displaces its own volume of water when immersed and using his principle found out the fraud.  That was the historic 'eureka moment' for Archimedes! 

Kautilya (283 BC) in his famous book 'Arthashashtra' has enlisted 440 ways of looting Government money.  This goes to prove that frauds and scams were very much there during those days too. 

He has also recorded a detailed outline of methods of preventing corruption and frauds including handsome reward for 'whistle blowers'.

What happened to his 'Nobel money'?

Around 1930s, in Bengaluru there was a crooked person called Gopala Rao who had started his own Bank.  Gopala Rao Bank had one of its branches near the present Malleswaram Circle.  Gopala Rao had mesmerized people during those days by his generous acts of charity.  Impressed by his charitable acts, the then Maharaja of Mysuru had awarded the highest title 'Dharma Ratnakara' on him. Naturally people started rushing towards Gopala Rao Bank for depositing their hard earned money.  Sir C.V. Raman, the first Indian scientist to win a Nobel, too deposited all his 'Nobel money' in this Bank. Gopala Rao swindled all money of people and declared himself a bankrupt. Upset Sir C.V.Raman had then said.....'Gopala Rao is too clever.  He should have been awarded the Nobel, not me'!

Mundhra Scam_1957
Independent India's first big financial scam was strangely exposed by Feroze Gandhi, the then Congress M.P. and son-in-law of the then Prime Minister Jawaharlal Nehru!

Haridas Mundhra, a Kolkatta-based industrialist and stock speculator fraudulently influenced the newly found LIC of India to invest about 1.25 crores in his six sick industrial units.  Those were the days!  Immediately the Justice M.C.Chagla committee was formed and it completed its investigation in just 24 days.  Resignation of the then Finance Minister T.T.Krishnamachari acknowledged the role of the Government too.  Mundhra was sent to jail for 22 years.


Nagarwala case - 1971

On 21st May 1971, reportedly a person called the Head Cashier of a branch of a well known Public Sector Bank (PSB) in New Delhi, imitating the voice of the then Prime Minister Indira Gandhi and asked him to urgently send Rs.60 lakhs.  The Head Cashier 'promptly' sent money through one Nagarwala.  When it turned out to be a hoax call, Nagarwala was arrested on 26th May and major portion of the loot was recovered.  Soon the Court inquiry was held which was completed within just 10 minutes!  Nagarwala was sent to 4 years imprisonment.

Same year Nagarwala died in custody. Reportedly he wanted to reveal everything! The police inspector who conducted the inquiry too died in an accident during the same year adding to the mystery of the case!

Harshad Mehta Scam 1992

1991 was the year of economic reforms ushered in by the duo of P.V.Narasimha Rao and Mr.Manmohan Singh.  This was followed by sudden spurt in the Stock Market.

Hershad Mehta, the crooked stock broker cleverly used the anxiety of bankers to earn quick profits.  He tacitly influenced two little known Banks and made them to issue Bank Receipts (BR).  A BR is a certificate issued by a bank stating that they hold certain amount of Government Securities which they are offering for sale to a particular bank.  Mehta would take these BRs to the designated bank/s who used to release huge sums to the credit of his 'personal account'! Mehta used to invest this money to buy selected shares causing steep rise in the stock market index.  During those days within a short period of about 4 months, ACC shares rose from a mere Rs.400 to Rs.10,000!  Rumours  started about misdeeds of this man. In order to book profit and make quick money, when Mehta started selling his share holdings, markets crashed causing panic!

The amount of money swindled by Harshad Mehta was 5000 crores.  Mehta was arrested, tried and convicted in about 4 of the 27 cases.  He too died in custody during 2001 at the age of 47.

Most Banks sick during early 1990s!

The newly introduced norm of Non-Performing Assets (NPAs), the other name for bad loans, exposed almost all banks, especially the Public Sector Banks (PSBs).  During that period all PSBs put together reported losses of about 50,000 crores.  Government had to bail out all these banks, by pumping in huge capital out of the honest tax payers' money!

During this period, one medium sized Public Sector Bank had the worst hit.  Probably that was the first highlighted case of unholy nexus between politicians and bankers.  This bank reported losses to the tune of Rs.1727 crores during 1995-96.  Its then chairman was later arrested, tried and convicted. But none of the politicians involved were even questioned!

History repeats!
But the problem of NPAs continues to haunt our Public Sector Banks.  At present these banks are burdened with whopping NPA figures of about 10 lakh crores (about 10% of their total loans and advances).  Not all NPAs may be because of continued reckless lending, scams and political interference. Reasons like change in market conditions, Government policies, global factors, failed monsoon also can cause NPAs. But the very survival of our Public Sector Banks is under threat. Honest tax payers money is being pumped in as capital to these banks, to provide them the oxygen of survival.  But for how long it can go on?

Silver lining on the murky horizon?
Present Central Government and RBI have dared to take the bull by its horns!  The newly framed Insolvency Act seems to be the hope for taming NPA goons. But we have to wait and watch.

Looking back at these chain of events is bound to make us gloomy and confused.  But for our certain passing thoughts and questions, there seem to be no answers.................

a) Why frauds and scams keep recurring?
b) Why there are only silly tricks behind so called big scams?
c) Why big scams occur more in Public Sector Banks?
d) Why only bankers are punished & politicians are never 
       questioned?
e) Are our auditors not accountable?
f) How to prevent fraudsters from running away?
g) Why there is no cooperation among so called developed  
       countries in effectively handling these running culprits? 
h) In a liberalizing economy, whether scams are recurring features?
i) How long Government can keep filling these banks with capital 
       which is a burden on honest tax payers money?
j) Can merger of Government banks be helpful?
k) Will removing banks from Government control going to help?
l) Is our money safe in banks?
m) Is it possible to recover these big NPAs?

Let us hope that there are reasons for cautious optimism!
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I have made references to many sites and drawn info and pictures from them.  I acknowledge my indebtedness to all of them.  

I thank you all for your patient reading.  Please send me your valuable feedback.