The Indian Banking System – A Mess?

Banking System

The Indian banking system is currently facing an unprecedented crisis. Unfortunately, the crisis seems to be deepening with the passage of time. When the Narendra Modi government came into power in 2014, India’s banks had already accumulated over two lakh crores of Non-Performing Assets (NPAs). No one could deny that banks, and particularly public sector banks, had not been running professionally and loans were extended to people who were not eligible to apply for a larger sum. For instance, even when Vijay Mallya failed to repay his loans on time, he was allowed to take more loans to save the loss- making King Fisher Airlines. However, as it turned out, the money meant to be invested in King Fisher Airlines had been diverted elsewhere. While giving additional loans, the bank management did not pay attention to evaluate the bank guarantees for the loans. Hence, Indian banks lost nearly Rs. eight thousand crores.

While action against Vijay Mallya was initiated during the administration of the UPA government itself, he managed to sneak away from the country by the time the Modi government had settled in power. Several sources have charged the government with connivance to aid Mallya’s escape. Regardless, since his escape the government has tried its utmost to extradite him from England, but success has been eluding our investigating agencies.

The Vijay Mallya case gave a big jolt to our banking system, which was already facing the problem of increasing NPAs. During last four years, the NPA had increased four-fold. With another bad debt at hand, this amount increased further. Indian banks have been so badly hit that its government decided to provide fiscal support to them, with around Rs two lakh. This means the government has effectively provided the banks the tax payers’ money to make recovery. However, the problem has grown much more acute. As banks struggle to recover from their predicament, a recent scam has shaken their resolve. Nirav Modi and Mehul Choksi fled the country by defrauding over Rs. 11 thousand crores. According to some estimates, the amount is much more than that. It is interesting that the government had provided Punjab National Bank a fiscal support of over Rs6000 crore and Modi- Choksi duo had slapped a loss of around Rs 12 thousand crore to the bank. The that question arises here is how much of the taxpayers’ money will the government spend to bail out the banks?

The scam of the Modi- Choksi duo is much more damaging to the banking system than the non- payment of dues by Vijay Mallya, because of the amount of scam and the manner in which the fraud was conducted. Earlier, it was feared that other banks are also being defrauded by the nexus involving bank officials, businessmen and politicians. The fear is coming to be true. The owner of Rotomac Pen was found to be involved in a scam of Rs 3600 crore. He had taken the loans and failed to repay it on time. Instead of investing the loan in his industry, he invested it in real estate. Another jeweller, Dwarika Das Seth was found to be involved in a similar kind of scam as found in the Modi-Choksi case. While the owner of Rotomac, Mr. Kothari, defrauded seven banks, jeweler Dwarika Das was found defrauding Oriental Bank of Commerce. Yet another industrialist owning a sugar company was also found to have looted some banks.

As the news of bank scams flood the Media, it regularly provokes mudslinging between the ruling and opposition parties. The mudslinging may be helpful to these parties, but it will not solve the malaise afflicting the Indian banking system. The government has to take serious note of scams and should solve the problem on a priority basis.

– Contributed by Kriti

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