How many more Mallyas and Modis?

After the sordid Vijay Mallya affair, now comes the Nirav Modi fraud case. These two high profile ‘businessmen’ have between them looted public and private sectors banks of Rs 20,000 crore and fled to foreign shores.

While Mallya’s case is an example of ‘wilful default’, Modi’s case is that of a blatant ‘fraud’. Mallya has failed to pay up about Rs 9,000 crore borrowed by the now defunct Kingfisher Airlines from public and private sector banks, Modi has resorted to duping the public sector Punjab National Bank (PNB) through dubious transactions. The fact that Modi continued to con the PNB and the authorities for about seven years (since 2011) exposes the flaws in the banking system and the chinks in the regulatory framework.

It appears that Modi exploited the loopholes in the banking system as also the corruption among the banking staff to con the PNB. He utilised the global financial messaging service SWIFT to route the transactions instead of the core banking system to carry out his dubious operations. Thereby, he succeeded in keeping the top management of the PNB in the dark. Modi carried out his nefarious activities inconnivance with a corrupt PNB official at the branch, and the fraud came to light only after this official retired.

The fact that the banking system can be so circumvented by an official at a branch office that a fraud building up to a massive amount of Rs 11,000 crore goes undetected for as many as seven years by the bank’s management really beats incredulity. But this has actually happened, and it indicates that there is something wrong with the banking system in India. This is a systemic failure and the blame must not only lie squarely on the shoulders of the management of the banks involved, but also with the banking regulator Reserve Bank of India. Such scams only call for a more stringent regulatory regime and the establishment of a rigorous monitoring framework.

One really shudders to think how many more Mallyas and Modis are lurking in the dark and whether they be exposed and brought to justice. When one considers how these conmen are allowed to scoot away with their loot, the picture looks gloomy. The government and the regulator will probably wake up only when the fraudsters bring down the entire banking system.