Prof A.K. Bagchi: Bank frauds are not unknown in India

Nice interview of Prof A.K. Bagchi. His amazing work on SBI’s history should be widely read and taught but sadly people are not even aware of the history volumes.

Have Nirav Modi and Vijay Mallya done something entirely new?

They have many worthy predecessors who have perhaps acted differently but with the same goal in mind, that is, plunder the money of the common depositors. I shall give a few examples from the colonial period. In 1829 the agency house crisis struck India, Bengal in particular. At that point of time not cotton but indigo export was the thing and it was a highly speculative trade. Well, the speculative business turned sour leading to the bankruptcy of companies like Mercer and Davidson. In fact, one bank failed after another – Palmer & Co, Ferguson & Co, Mackintosh and Co and Alexander & Co. This serial disaster began in 1829 and lasted till 1834.

In 1906 another financial organisation Arbuthnot & Co went totally bankrupt. What is scandalous is that even when it was wallowing in bankruptcy, it accepted deposits from the common people. Ultimately, the Bank of Madras had to intervene though by that time many common depositors had to suffer grievous losses.

I had written an article on banking crises  drawn largely from Prof Bagchi’s works, where I argued the same thing: banking frauds in India are as common as it can get.

Some people are proposing privatisation of the nationalised banks.

That is undoubtedly the worst remedy. No matter how big is the scam in the nationalised banks, your money and my money are lying safe in these public sector institutions. This minimum guarantee will no longer be present or available in private banks. Please, don’t forget, when I was talking about the banks that operated in the colonial period, I mentioned that these were all private banks and the common gullibles lost their fortunes by parking their funds with them.

Yet, at the same time, some drastic corrective measures have to be taken which could be keeping track of the value of collaterals on a daily basis, procuring personal guarantees so that the possible offenders cannot escape by putting their assets in a trust taking advantage of the Mitakshara law, their citizenship needs to be constantly monitored so that they cannot go beyond Indian jurisdiction, and finally the status of Mauritius as a tax haven should be immediately abolished.

This is another point I made in the article. That for all you know frauds have existed in private banks much more than one can imagine.

Also interesting he mentions Mitakshara Law…

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