Bank scam done in any manner are considered a criminal offense. There are various examples of bank scams in India that gulps the money of Citizens and heavily impacts the economy in terms of financial loss.
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What is a bank scam?
Frauds done on a huge scale by individuals or owners of big enterprises that will result in financial losses for banks is called Bank scam.
A bank scam is an illegal offense done by a person or an organization in order to get monetary benefits by doing unethical activities that cause financial loss for another person, organization, or country.
Loan defaults, fake calls on behalf of bank representatives, fake credit schemes, misinterpretation of data in reports, fake lending, etc. are the examples of bank scams and fraud cases
Some bank scams in India
Punjab and Maharashtra Cooperative bank scam
PMC or Punjab and Maharashtra cooperative bank as the name suggests it is a cooperative bank. Cooperative banks are registered under cooperative society act 1965. They provide loans to agricultural businesses and work in limited areas.
The main purpose of cooperative banks is providing service in the market especially in rural areas. The Corporation bank borrows money from the public and lends to small businesses. These provide higher interest than any other bank. RBI and NABARD govern the Corporation banks for banking and legislative administration.
MD (Mr. Joy Thomas) of PMC bank released a notice in September 2019– “Regret to inform you that your PMC bank has been put under regulatory restrictions under sec 35A of banking revolution act by RBI for the period of six months”.
These cooperatives borrow money from people and provide loans in agricultural use and small businesses. These banks have a political influence which interrupts in proper functioning. Figures in the annual report of 2018-19 submitted to RBI by Punjab and Maharashtra Cooperative BANK are mentioned below:
|Profit of 2018-19||Deposits as of march 2019||Non Performing Assets||Total loans & advances|
|INR 99.69 Crore||INR 11617 Crore||3.76%||INR 8383 Crore|
Reserve bank of India observes misinterpretation of data in the annual report submitted by PMC bank. Bank suppresses the irregularities in lending and problematic assets in the report. The reported average NPA was more than 3.76%.
RBI releases total NPAs were INR 2000-2500 crores whereas the bank shows INR 315 crores. which were not mentioned in the annual report 2018-19. PMC has lent loans to housing companies like Housing development and infrastructure limited (HDIL).
PMC was funding HDIL even after multiple defaults. Scheduled commercial banks had declared HDIL as a defaulter. HDIL was taken to the national company loan tribunal for insolvency proceedings. Still, PMC was providing loans to HDIL and suppressing the HDIL defaults.
The Board of Directors was suspended by the Reserve bank of India and an administrator is appointed for the administration of PMC bank during a period of six months.
In the Future, RBI will take a call for whether the period should extend or not. The merger of PMC with other cooperatives can be an option. Liquidation of INR 1 lakh to depositors under DICGC will be provided when a bank is going to closed.
Punjab National Bank & Nirav Modi scam
Punjab national bank filed a complaint against Nirav Modi and his diamond companies (Diamond R US, Solar Exports, and stellar diamonds) on 29 January 2018.
Letter of undertakings (LOU) issued by fraudulent in mid-corporate Brady house branch of Mumbai to execute the scam. An inter-bank contract that allows the third party to take the liability of loan in case of default on behalf of the loan borrower is called a letter of undertaking.
With the help of some PNB officials without procedures, mortgage and lending norms multiple letter of undertakings of INR. 11400 crores to Mr. Nirav Modi’s firm. These PNB Officials will instruct the foreign banks through SWIFT to issue buyer’s credit to Nirav Modi’s firm without doing entries in the Core Banking solution.
On the basis of these LOUs Nirav Modi applies for Buyer’s credit from Allahabad bank and Axis bank branches in Hong Kong. When overseas financial institutions give short term loans to importers to pay off the supplier’s bill is called a Buyer’s credit.
In January 2018 Nirav Modi’s firm (Diamond R US, Solar exports and stellar diamonds) approach PNB for Buyer’s credit. The PNB officials were retired and new officials have been appointed.
The officials ask to bring collaterals of the same amount of buyer’s credit. But Nirav Modi’s firm refused for the collaterals and ask them to provide buyer’s credit without collaterals as they use to get it before.
CBS (core banking solution) was not linked with SWIFT (Society for Worldwide Interbank Financial Telecommunications) In the case of Punjab National Bank. Auditors were unable to suspect the LOUs issued to Nirav Modi because of lack of entries in CBS and the delinking of the two platforms
This is where the investigation started; where they got to know that the repayment of the buyer’s credit from Nirav Modi and his firm is pending since 2011 and the burden is on PNB. So this is how the whole scam will come out.
Yes Bank Scam
Same as the PMC bank crisis Yes bank use to hide bad loans in the balance sheet. In 2015 during the asset quality review Reserve bank of India observes misinterpretation of data in the annual report and balance sheet submitted by YES bank. Bad loans of INR 4000 crore were investigated in 2016.
The amount will rise to 6000 crores in 2017. By the investigation reserve bank of India announces that Mr. Rana Kapoor will not be MD and CEO from 1 February 2019. Ravneet gill was appointed as new MD and CEO to avoid bad loans and increase NPA. Yes bank provides loans to dewan housing finance, IL&fS, Anil Ambani’s Reliance group which were defaults by the companies.
This will cause negative goodwill in the market and Credit rating companies to start criticizing and degrading the rating of the bank which declines the share price of yes bank.
RBI imposes restrictions on Yes bank after all the controversies and negative goodwill. Rana Kapoor was arrested by enforcement directorate for corruption and money laundering fraud of INR 4500 crore. State bank of India will be going take some stake of Yes bank.
What the government should do for scams
Better and more precise surveillance by Reserve Bank of India and the government on Indian banks.
More power and freedom to the Central Bureau of Investigation in order to investigate such Bank scams in India.
Increase in financial literacy and promote work ethic culture among employees to prevent such bank scams in India.
Strict laws and order to control such bank scams in India. The government should enhance the strictness and surveillance of such scams.
In this blog we have discussed bank scams, three devastating bank scams in India, and what are the actions government should take to control bank scams in India.
Bank scam is an illegal offense that will cause heavy financial loss to banks and country. We have discussed how fraudsters like Nirav Modi gulps the money of taxpayers.
Govt had undercharged telephone companies for allotment of frequency licenses to create a 2G spectrum. Scam worth 176000 crores.
By filing FIR in police station one can report a scam under sec 420 of IPC- Cheating, and dishonesty.
A scam is a fraud doing it or provoking someone to do it is a criminal offense under sec 420 of IPC– Cheating and dishonesty.
Very famous Harshat Mehta scam in 1992. Where fake bank receipts of securities were used by Harshat Mehta to make money.
1.PMC bank INR 2000-2500 crore,
2. Laxmi Vilas bank INR 790 crores,
3. Yes Bank worth over INR 4500crore,
4. IL&FS financial burden of more than INR 90 thousand crores,
5. Nirav Modi INR 11400 crores.
Like the PMC bank, there is a false representation of data in annual asset reports and balance sheets.
Yes bank was hiding their INR 4500 crores of bad loans created by continuous default payments. which will increase the Non-performing assets of Yes bank in India.
Common GST scams involve fake firms, fake invoices, to get payments and fake income in Income tax return filing.
Gst regimes are not easy to maintain for every business especially for small business units. Consumers strictly demand the invoice with the GST number. But because it is difficult to maintain GST norms for small businesses in need of the hour situation these business issues fake invoices to get their payments done.