Come election time and all political parties seek to mollycoddle vote banks. With concessions, subsidies, jobs, money, etc. They hope that they will be remembered when the button on the EVM is being pressed.

This government is neglecting the biggest vote bank, simply because this constituency is a silent one and does not lead protests. It is the community of individual investors. It is they who save 30 per cent of their income, dutifully parking their savings into various assets and often getting cheated of their lives’ savings by scamsters and even by banks! If we want these individuals to continue saving and funding India’s growth it is past high time that the government cracks the whip on those who defraud them and on those who help the scamsters. That is how it is done in other countries.

Bernie Madhoff was a well connected individual who foisted a $65-billion Ponzi scheme. The government appointed one agency to investigate. It completed the investigation in six months. The Federal Court gave Bernie a 150-year jail sentence.

In India the government has several agencies investigating the same matter, and tripping over each other in an uncoordinated manner. The CBI, MPID, EOW, Special Committee of the High Court, etc, were, for example, investigating the NSEL Ponzi scam. Little wonder it has taken over four years. Judicial delays and easy adjournments encourage fraud.

PNB scam

The apathy (induced or otherwise) of investigative agencies and the leniency of the judicial system in prolonging litigation results in a constant news flow of frauds. The latest is the fraud of $1.77 billion in PNB, which was once the Number 2 bank by assets in India. According to reports, a diamond company owned by jewellery designer Nirav Modi, connived with a bank official to obtain false Letters of Undertaking. The case reveals weak systems in the bank that allow, and fail to detect, fraud on such massive scale, raising, yet again, the question why government should be running banks in the first place.

Compared to salaries, the financial stakes in cheating the system are so high that it is a natural breeding ground for corruption. The only way to put an end to more such fraud is to crack the whip hard and give such exemplary punishment that both the perpetrators of the fraud as well as those who assist them in it, pause to think of the consequences.

At present the consequences of being caught are paltry, compared to the reward for assisting the crime. Suspension from the job? Perhaps to be re-instated later?

Bail in fears loom

It is not inconceivable that continued distress in the banking sector will lead, in a few instances, to a bail in, i.e. depositor money will be used to recompense banks such as PNB, for their own mistakes and weak systems.

India plans to spend $1.5 trillion on infrastructure alone over the next decade. Domestic savings from individual investors would fund a great chunk of this proposed expenditure. Even apart from looking on them as a vote bank, the government needs these savers.

The day the individual investor stands up and starts to protest the shabby treatment meted out to him, the government would get a jolt. A run on a weak bank would be the least of its worries. It is better to start protecting him now, before he realises that laying all the blame on his ‘karma’ is simply a con job.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)

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