Which are the biggest Banking Scams of India?

The banking system of any country comprises of the small savings of the people. When a large number of people deposit the money it becomes the huge amount in the hands of the banks. Commercial Banks lends this money to individuals, traders and institutions and earns profits in the form of interest. But when the lenders do not returns this amount to the banks it becomes the threat to the banks.
Bank Fraud
Bank Fraud

The banking system of any country comprises of the small savings of the people. When a large number of people deposit the money into banks, it becomes the huge amount in the hands of the banks. Commercial Banks lends this money to individuals, traders and institutions and earns profits in the form of interest. But when these lenders do not return this amount to the banks it becomes the Non Performing Assets (NPA) to the banks which further creates threat to the existence of the banks.

This article is publishing the information about the recent scams occurred in the Indian Banking System.

A recent study published at the IIM Bangaluru in 2016 says that in the last 3 years, Public Sector Banks (PSBs) in India have lost a total of Rs. 22,743 crore, on account of various banking frauds.

As on 31 March 2018, Indian bank's; Gross Non-Performing Assets (NPAs), or bad loans, stood at Rs. 10.25 lakh crore.  On quarter, the NPA has grown by Rs. 1.39 lakh crore or 16% UP from Rs. 8.86 lakh crore as on 31 December 2017.

Difference between Scheduled and Non-Scheduled Banks

Let us know that which are the major bank scandals in India's banking history;

According to the report of IIM-B, about 455 frauds cases in ICICI Bank, 429 in SBI, 244 in Standard Chartered Bank and 237 cases in HDFC Bank were caught in the first nine months of the year 2017. The report says that bank employees were involved in the most of the banks frauds.

Data shows that more than 60 employees of State Bank of India, 49 employees of HDFC Bank, 35 employees of Axis Bank have been arrested in the fraud cases. After the Nirav Modi case, Punjab National Bank has suspended its 20 employees.

Let’s have look on the biggest bank scams of India;

1. Neerav Modi Bank scam;
This bank scam is being called the biggest scam (Rs 11,400 crore) in the banking sector of India. The main accused of the scandal is billionaire jeweller Nirav Modi and his uncle Mehul Surakshi (owner of Gitanjali James). Both of them had received "Letter of Undertaking" from the consent of the employees of PNB’s Mumbai branch and withdrawn the funds from the foreign banks on the guarantee of Punjab National Bank.  However, the Enforcement Directorate has seized assets of Nirav worth over Rs 5870 crore.

2. Bank Scam by Vijay Mallya
Mallya's Kingfisher Airlines had borrowed Rs 9,432 crore from 13 banks till February 2018. The State Bank of India was the biggest lender with 1600 cr. followed by the PNB 800 cr,  IDBI 650 cr and Bank of Baroda lend 550 cr.


Malya left India on March 2, 2016 and hiding in the London and the government of India is fighting for his extradition till date.

3. Allahabad Bank Scam:

Kolkata-based Allahabad Bank has said it has an exposure of ₹2,363 crore in the PNB fraud case.

However, Allahabad Bank stressed that it is sure about the recovery of the payment as the exposure was fully secured by Letter of Undertaking (LoU) documents.

“The bank, through our overseas branch at Hong Kong, has been taking exposure with Punjab National Bank as counter-party under various Letters of Undertakings issued through authenticated SWIFT message”.

How this scam taken Place:

SWIFT stands for the "Society for Worldwide Interbank Financial Telecommunications". It is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes.

SWIFT in banking

To do the scam in the Allahabad bank; the SWIFT technique is misused by the internal employees of the Allahabad bank. The internal banking system of the Allahabad bank was not attached to the SWIFT that is why the transactions were not mentioned in the accounting book of the Allahabad bank. That is why there was no transaction record found between the PNB and Nirav Modi.

4. Rotomac Pen Scam;
The Promoter of Rotomac pen Vikram Kothari, allegedly fraudulently cheated Rs. 3,695 crore with seven banks. Kothari has misappropriated loans worth Rs 2,919 crore from 7 banks and the total outstanding amount, including interest on him, is Rs. 3,695 crore. The CBI has arrested managing director of Rotomac Global Pvt Ltd Vikram Kothari.

The banks whose money is trapped in this scam are;

1. Bank of India:-                      Rs 754.77 crore

2.  Indian Overseas Bank:-          Rs 771.07 crore

 3. Union Bank of India:-            Rs 458.95 crore

4. Bank of Baroda:-                  Rs 456.53 crore

 5. Allahabad Bank:-                 Rs. 330.68 crore

 6. Oriental Bank of Commerce:- Rs 97.47 crore

7. Bank of Maharashtra:            Rs 49.82 crore

This scam is related to the biggest Private Sector Bank of the country i.e. SBI leading the consortium of 14 public and private sector.  The principle loan is about Rs. 824 crore, adding the interest due would indicate a loss of more than Rs 1,000 crore to the banks.

The main accused in this scam is Kanishka Gold Pvt. This company did not pay a loan of Rs. 824 crore, which has been converted into "NPA". The CBI has registered a case against Chennai-based company Kanishka Gold and ED has started investigating the fraud. The director of this company Bhupendra Kumar Jain and his wife Neeta Jain have fled the country.

These banks have lent money to the Kanishka Gold Pvt;

1. State Bank of India:-                   Rs 240 crore

2. Punjab National Bank (PNB):-        Rs 128 crore

3. Bank of India:-                           Rs 46 crore

4. IDBI:-                                      Rs 49 crore

5. Syndicate Bank:-                       Rs 54 crore

6. Union Bank:-                             Rs 53 crore

7. UCO Bank:-                              Rs. 45 crores

8. Central Bank:-                          Rs. 22 crores

6. R P Info Systems Bank Scam:

The CBI has booked a computer manufacturer R P Info Systems and its directors for allegedly cheating a consortium of 9 banks with amount of Rs. 515.15 crore. This company has used fraud documents to take the loan.  CBI had raided the offices of the company in Kolkata and other places on February 28, 2018.

7. Simbhaoli Sugar Mills Bank Scam:

CBI has registered another bank fraud against one of India's largest sugar mills- Simbhaoli Sugars Ltd, amounting to Rs 200 crore. There are 10 people have been booked, including the chairman of Simbhaoli Sugar Mills Limited Gurmeet Singh Mann, Deputy Managing Director Gurpal Singh and CEO GSC Rao.

simbhaoli sugars

According to an estimate, in the last three years, the bank scams of around Rs. 23,000 crore have taken place in the country, due to which the country's banking system has suffered a lot. This is why the total NPA of the country's banks has crossed the mark of 10 lac cr in June 2018.

Now it is the need of the hour that the government should take some concrete actions to check the Crony capitalism and the intervention of the politicians in the functioning of the banks in India.

Why “I Promise to pay the bearer sum of 100 Rupees” is written on the Indian Currency?

List of Public Sector Banks which have highest share in NPA

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