Loot and Run: Nirav Modi and Mallya Modus-Operandi to dupe Banks

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The economy of the country is going through a tough phase trying to recoup from the disruptions caused by demonetization and the GST rollout. While the recurrent impact of these structural reforms appears to wean, the difficulties have been exaggerated by the growing Non-Performing Assets (NPAs) of the Public Sector Banks. The government has already pumped in more than ₹ 80,000 crores of the taxpayers’ money to make good their losses. Every time a new fraud or NPA scam surfaces, the hollow promises of politicians, bureaucrats, and tax officials for plugging the systematic loopholes emerge. But the recent Nirav Modi fraud amounting to a whopping sum of ₹11,400 crores for the Public Sector Banks has exposed the truth. The Diamond Merchant duped the banks through such a crude form of fraud that the entire nation is in utter disbelief and shock. It depicts the failure of banking agencies, tax investigation agencies and RBI supervision. What adds salt to the wounds of the common man is the fact that he has clandestinely fled away from the country and is now untraceable by the government. The similarities with which the multi-crore fraudsters are able to escape be it Vijay Mallya or Nirav Modi mocks at the political will of the ruling Modi dispensation to bring culprits to book. It has become a settled practice to loot the common man’s savings stashed in the public sector banks and flew overseas to perpetually escape prosecution from the legal system.

Modus Operandi for Fraud

The scam like the one which was perpetuated by Nirav Modi tends to exploit the loopholes in the institutional mechanism of the banks. Nirav Modi was able to defraud the Public Sector Banks for more than ₹11,000 crores through the deadly mix of bribery and crony capitalism. He took loans on account of the false Letters of Understandings (LOUs). The interesting feature of the scam is that multiple loans were forwarded by the banks on account of the same LOUs which were not genuine. The fraud came to light when the culprit once again approached the Punjab National Bank (PNB) for another loan, but the new official refused to honor the LoU and scrutinized the records. The skeletons came tumbling out of the cupboard and it was learned that this modus operandi was being used since 2011. There are also allegations that he duped when franchises of the brand Geetanjali and garnered crores in the process. He is even accused of selling duplicate diamonds at exorbitant prices and blackmailing the whistle-blowers to keep their mouth shut. His close aide in the misdemeanor was his uncle Mehul Choksi who also duped the banks through an intricate web of corrupt officials. Police have also arrested two bank officials from the Mumbai branch including one deputy manager who honored the LOUs. What is more ironic is the glitz and glamour with which Nirav Modi used to live life. Partying with Bollywood celebs, politicians and bureaucrats; he was a Page 3 regular. Expensive cars, big bungalows, and showrooms at the costliest markets of the world, Nirav Modi personified a life every human being can dream off. It is indeed hysteric that all that gold just painted and luxurious life was at the cost of the taxpayers’ money. He clandestinely fled away from the nation before the police came calling. The audacity of the scamster is such that he has corresponded through his counsel that he would have returned the loan amount if the bank would not have made the matter public. That claim of his is only as real as the glass crystals he sold to his high-end clients in the name of diamonds.

Institutional Failure of the Banking System

The spate of the massive frauds that has gripped the Indian Banking Sector truly reflected the colossal failure of the inbuilt checks of the systems to detect such frauds. Criminals like Nirav Modi and Vijay Mallya are able to exploit the institutional loopholes to pocket large sums illegally. The loans given in the banks are only extended after detailed scrutiny of the businesses, but it is true how on earth Nirav Modi was able to secure loans for seven consecutive years on a trough on account of false LOUs. The banks also have a detailed audit of any loan amount which is greater than ₹100 crores and directors take a call on bad loans. The collision of the bank officials even at the level of the directors seems imperative for amassing ₹11,000 crores. The malaise of the absence of the accountability plagues the entire banking system. In spite of the fraud amounting to ₹11,000 crores, the directors and the high-ranking officials have not been arrested for their involvement. It is unimaginable to fathom that a deputy manager ranked official could commit such scam without the aid of his seniors. The directors involved in this heinous offense must be immediately arrested and prosecuted for corruption or at least dereliction of duty.  The gaps in the auditing mechanism must be removed and the Reserve Bank of India (RBI) must put in place a foolproof system for the same. There is also the misuse of the SWIFT (System of Worldwide Interbank Financial Transactions) password by the banking officials to attain loans on account of fake foreign guarantees. Such glaring errors reduce the entire system to mockery.

Adverse Repercussions of Bank Frauds

The main effect of the Banking Frauds is the loss of the money by the government and huge embezzlement of funds out of the nation. The government will now have to make good the loss and will re-capitalize the banks out of the taxpayers’ money. The rising taxes, cesses and user charges for tolls and public amenities are direct results of such frauds. Due to the bad health of the banks, the recruitment of the new officers and the subordinate staff is adversely hampered which reduced the public employment opportunities. It is indeed ironic that on one hand, the population of the nation goes on increasing, but on the other hand, the number of new employees is being reduced which results in unrealistic completion for each post like more than 10 lakh aspirants for mere 1200 posts. What is even more mind-boggling is that the directors and senior management officials go scot-free after embezzlement public money.

The erosion of the public confidence in the banks is the senior adverse effect. The money looted by dacoits like Nirav Modi, Vijay Mallya, etc. is public money and is constituted through mobilization of the savings of crores of middle and lower-middle-class families throughout their lives. The famous life that the common man saves his savings into the bank account and the businessmen splurge the same with impunity hols good. The paralysis of the entire system to detect such scams is threatening and calls for a complete overhaul of the system with necessary changes to protect the banks from such unscrupulous frauds. Another disastrous effect is the loss of employment for thousands of employees of the Geetanjali Diamonds who are now rendered jobless, due to government’s failure to detect frauds in time.

Lack of Political Will

Notwithstanding the assurances of the Finance Ministry that the culprits will be brought to book, the truth is that the present dispensation has failed to curb the bank frauds. Vijay Mallya was allowed to escape and he remains an absconder for more than a year now. Similarly, Nirav Modi was allowed to leave India and is now untraceable by the government. The fact that he was photographed with PM Narendra Modi about a month ago at the World Economic Forum’s Davos Meet casts doubts on the integrity of the ruling dispensation. The whole world acknowledges the undisputed stature of Narendra Modi was a global leader with unprecedented rapport with PMs of other nations. But that rapport falls flat in front of goons like Vijay Mallya who continue to mock at India’s legal system by opening residing in the United Kingdom without being extradited to India. The government has not been able to secure his extradition in spite of the lapse of more than a year of him being recognized as an absconder in India. The investigation raids and confiscation of property in the Nirav Modi case by the governmental agencies are laudable, but it appears to be more of a damage control as he has already escaped the clutches of law. Even some of the news channels have been far more proactive in their investigation against Nirav Modi than the Indian government. It appears that the government must take a lesson or two from them in a criminal investigation.

The absence of accountability is evident in the banking sector and the government has failed to bring the real culprits to book. Though the present dispensation blames the UPA government for the frauds, the truth is that the Nirav Modi case has revealed the true colors of this government as well. The fraud continued well into 2017 which is more than three years since the government has taken the oath. The mantra of “Naa Khaunga, Naa Khanedoga” has been violated with impunity. It is really sad to know that on one hand, more than 12 thousand farmers commit suicide in India every year due to inability to repay a loan of mere ₹ 1 or 2 lakh, while Nirav Modi is allowed to go scot-free even after embezzling ₹11,000 crores. Is the life of the farmer of no sanctity for the nation or is the system only concerned about the high and mighty? Though the Constitution grants sovereignty to the people of India, the real sovereign is scamsters like Nirav Modi and Vijay Mallya who continue the life the lives of luxury while avoiding the grasp of the law.

The present case is also vital because a number of whistleblowers have now surfaced who have even complained about the fraud in 2016, but no action was taken by the government official. The corrupt bureaucrats and directors must be arrested and prosecuted for their involvement in the crime. The people of India want the government to rise to the occasion and expedite the investigation to bring the culprits to book as soon as possible.

Introspection of the System – Need of the Hour

The Nirav Modi case truly presents a great opportunity for the baking system to conduct through introspection and plug the loophole. If the directors of the banks drawing a salary of lakhs of rupees per month are unable to detect senior frauds, they must be shown the door. A new and comprehensive legislation must be enacted to cover the malaise of baking frauds with in-built checks, robust vigilance, and speedy investigation. Stringent punishment amounting to life imprisonment must be given to the looters of the public money. The bureaucrats and politicians involved must also face the music and special courts could be established for the same.

The government must perform its constitutional obligation to uphold the law of the land and must locate Nirav Modi and extradite him. The looters must not be allowed to run out of the country in future cases diplomatic efforts at the highest levels must be initiated to ensure their speedy return. All others involved in the scam like Vipul Ambani and Mehul Choksy must be prosecuted at the earliest. It is important that the faith of the public in the banks is restored through stringent punishments and confiscation of property. Only if the criminals like Vijay Mallya and Nirav Modi be brought to book, that the dictum of “Whose soever high you are, the law is above you” be proved true.


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