Scams & Frauds: Serial Killers of the Economy

The Indian economy has been growing at an unprecedented rate in recent times. Various factors have culminated together to lead to such growth. No doubt, financial institutions are one of the most important aspects and thus referred to as the ‘backbones of the economy’. Banks, co-operatives, and other financial institutions look into the monetary affairs of a state, thus making their efficient functioning essential for an economy’s healthy growth. However, in recent times, these holy institutes have been marred by impious activities.

They do face errors and issues due to a number of reasons but it is of no serious concern until it is taken care of. There have been times when these issues and errors slipped out of hand and created chaos among the public. These major errors can also be termed as ‘banking frauds’. Banking frauds are referred to the illegal and unethical means used by one party to extract or misuse funds, assets or even property owned by a financial institution. 

India has seen a spike in these frauds recently and the reasons are still unknown. The cases of Vijay Mallya and Nirav Modi are two major examples of such frauds. Mallya is accused of fraud and money laundering and owes an estimated ₹90 billion to 17 Indian banks. The Nirav Modi-PNB scam is one of the largest in India’s banking history. It involves undertaking an estimated amount of ₹110 billion from the Punjab National Bank, Brady House branch located in Mumbai. Both accused escaped the country and the cases are still under trial. The money has not been returned yet and thus the banks had to lose out on such a huge amount that belongs to their account holders in the first place.

Frauds are usually done by individuals for petty self-gains but the involvement of people within the banks is definite. It is possible to plan and execute a crime so huge only when you play around with the loopholes existing in the policies and thereby messing the entire functioning of the system. This usually requires help from the people working within the institution and in most cases of frauds, employees are involved. The advent of technology can also be one reason which facilitates these frauds. Other reasons can be concentration of power at certain levels or giving leeway during legal procedures. Ideally, accounts with huge exposures and capital need to be checked frequently with the use of forensic due diligence infrastructure. The decision making regarding huge loans should be done by a committee rather than a single person. Monitoring the trail of money will also reduce the risk of laundering cases. 

The question still remains: how do these frauds impact the public or even the economy?  They cause a slowdown in the growth of the economy which weakens the economy and discourages foreign investments. The money being stolen or laundered in these cases is the public fund. The minute public loses trust in a bank, it leads to even greater losses for the banks, and the bank might even go bankrupt. Banks play an important and integral part of the monetary system. They affect the cash flow, money demand, and various other factors. The moment their functioning is disturbed by these frauds, it definitely trickles down to other areas as well. 

Frauds and scams can surely be avoided at various levels and it is important that even governments provide guidelines to minimise the risks. Strict action against the offenders should be taken to set a precedence for the public. It is a huge task to maintain transparency at every step but at the same time, banks should come forward and take responsibility and accountability for the mishaps. The trust between the public and these financial institutions has to be maintained for the smooth functioning of the economy. Banking institutions are vital and thus a step towards more secure functioning needs to be taken to avoid these circumstances. It is tedious but definitely not impossible.


Ananya Singh

An Economics student trying to make sense of the world! Extremely fun & talkative but only if I like you ;)

The Pangean does not condemn or condone any of the views of its contributors. It only gives them the space to think and write without hindrance.