Why the Government Fails to Institute Rigorous Laws Against Banking Scams: Lessons from Vijay Mallya and Nirav Modi

Introduction

The question of why the government does not make strong laws against banking scams, as evidenced in cases like those of Vijay Mallya and Nirav Modi, is crucial to understanding the complex interplay between political power, economic crimes, and government governance. When significant financial scandals like these unfold, the public rightly demands accountability and stringent legislative measures. However, in reality, the situation is far from straightforward.

The Role of Political Influence in Banking Scams

During the Vijay Mallya and Nirav Modi cases, it became evident that even when comprehensive laws are in place, political influence often reigns supreme. High-ranking politicians from the ruling party frequently issue directives to banks, compelling them to bypass rules and provide large sums to high-net-worth individuals (HNIs) for personal gain. This can effectively tie the hands of bankers, who are unable to enforce rules or take decisive action, despite the clear violations of regulations.

Pressuring Banks to Avoid Delisting Accounts as Non-Performing Assets (NPAs)

Politicians go further by pressuring bankers to continue extending credit to HNIs, ensuring their accounts do not show up as non-performing assets (NPAs). This strategy delays legal action, prevents cases from progressing, and leads to a rise in NPA figures, as interest continues to accumulate on these loans, with no recovery in sight. This collusion between powerful politicians and bankers means that justice is often bypassed, and the public suffers the consequences.

Corruption and Inadequate Accountability

In both the Jain and Nirav Modi cases, instances of corruption and inaction were prevalent. For example, in Nirav Modi's case, officers of the FOREX department in the relevant branch were not transferred for over seven years, despite the rule mandating transfers every 2-3 years. This suggests that prioritization of political interests over regulatory compliance is a persistent issue. Additionally, trade unions in these branches may also contribute to the inertia by failing to challenge top-down directives.

Bureaucratic and Political Obstacles

The delay in instituting strict measures against banking fraud is often due to bureaucratic and political obstacles. When a high-profile scam occurs, the involved parties, including top officials in the finance ministry, auditors, and politicians, often profit from the scandal. Therefore, they resist calls for strong laws and regulations. The public outcry eventually pressures the government, but clever politicians and bureaucrats often mitigate the impact by implementing new rules with inherent loopholes.

Lessons and Implications

The Vijay Mallya and Nirav Modi cases highlight the need for a more transparent and robust regulatory framework. To prevent such issues in the future, mechanisms must be in place to ensure that there is no overlap of interests between political actors, financial institutions, and regulatory bodies. Public awareness and advocacy are crucial for driving change, but they must be supported by effective legislative action.

Conclusion

The failure to institute stringent laws against banking scams is a pressing issue that requires a multifaceted approach. Addressing corruption, enforcing regulations, and ensuring accountability are critical steps. As long as political influence remains unchecked, the threat of banking fraud and its negative impact on public trust and economic stability will persist. It is imperative that we continue to scrutinize and reform the current systems to safeguard the financial sector and protect the interests of all citizens.