Last week masked men broke into a branch of the Union Bank of India in the city of Kanpur by drilling a hole in the wall.
Once inside, they disabled the security cameras, looted the safe deposit boxes and left with cash and jewellery worth tens of millions of rupees.
When the theft was discovered, the news hit the newspapers and TV channels who, accurately, described the robbery as sensational and shocking.
But the people of India were far from shocked. Posts and messages on Twitter, Facebook and WhatsApp asked why the thieves had bothered to rob the bank the old-fashioned way.
Didn’t they realise that there was a much easier way of robbing banks? And the best thing about the easy way was that you could keep the money, never be brought to account and live in luxury in the world’s most glamorous cities for the rest of your life!
Everyone got the reference. For all of the last fortnight, India has been abuzz with stories about two of the country’s best-known jewellers. One of them, Mehul Choksi, may be the most important figure in the country’s diamond and jewellery sector and his Gitanjali brand is a household name. The other, Nirav Modi, who is related to Choksi, has been India’s most glamorous jeweller, with film stars as brand ambassadors and shops on London’s Bond Street, New York’s Madison Avenue and in Hong Kong. Modi rose from relative obscurity in the course of a few years to create one of the few globally recognised Indian luxury brands.
But, say police investigators, both men built their empires on credit that was fraudulently obtained from a single government-owned bank, the Punjab National Bank. The exact figures are in dispute but some estimates put the extent of the fraud at $ 1.8 billion.
Bank frauds are a global phenomenon but the latest scandal has a particular resonance in India where the pattern has become all too familiar. State-owned banks give loans worth hundreds of millions of dollars to well connected businessmen. These businessmen fail to repay the money. Eventually, the banks complain to the police. But even as the investigations are underway, the businessmen are allowed to leave the country and take up residence in a jurisdiction where they may be beyond the reach of the Indian authorities.
| "Businessmen prefer to get their loans from state-owned banks because they know that the money will be advanced without adequate collateral or proper checks." |
Both Choksi and Modi, for instance, left the country even after the alarm had been sounded. A celebrated previous case involves Vijay Mallya, India’s most flamboyant millionaire. Mallya’s companies owe Indian banks a staggering Rs 35 billion.
Mallya denies any fraud and lives the playboy life in London. Efforts by the Indian government to extradite him have, so far at least, amounted to nothing. In the case of Modi and Choksi, Indian investigators have not even been able to establish where in the world they are hiding.
The robbing of the banks (and ‘robbing’ is the right word) by Indian business is not a new phenomenon. According to some estimates, Indian banks have Rs. 2,000,000 crores (a crore is an Indian unit equal to ten million) worth of bad loans on their books. (The official government figure is Rs. 8,00,000 crores.) Two factors distinguish these bad debts. One: the majority of the loans are to top businessmen. And two, 90 per cent of the dodgy loans were given by state-owned banks. Only 10 per cent were given by private sector banks.
Inevitably, Indians treat these figures as proof that the state-owned banks are being manipulated to help fat cats with political connections. There are also allegations of corruption. Indian investigators have arrested several bank officials though no senior figure has been touched yet. Nor is there any investigation of the political links of those who defrauded the banks.
After Modi and Choksi left the country, the Opposition Congress party accused the government of having allowed them to escape.
But the Congress also has much to answer for. Indira Gandhi, the grandmother of the current Congress President Rahul Gandhi, nationalised India’s largest banks in 1969 in the hope of providing credit to the poor.
Instead the nationalised banks became sloppily-run white elephants that were routinely used as piggy banks by the corporate sector. Businessmen prefer to get their loans from state-owned banks because they know that the money will be advanced without adequate collateral or proper checks.
It is also far easier to grease palms in the public sector. The chairmen and boards of these banks owe their positions to the government so nobody will look too hard if a politically well-connected tycoon asks for billions of rupees. This was as true when the Congress was in power as it is today.
What is most worrying however is that even after the alarm bells have gone off, the businessmen can leave India at will. In the case of Nirav Modi, the investigation had already begun when he was allowed to pose with Prime Minister Modi for a group photo of the titans of Indian industry at last month’s World Economic Forum meeting in Davos in Switzerland.
That picture may be final proof that bank robbers who tunnel into vaults are wasting their time and effort. If they just set up a corporation and made friends with politicians, they would earn billions without doing anything. And they would never get caught or have to pay the money back!
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