A Brief History of Indian Banking
Let’s take a look back at our banking system and how it began and has evolved over these years. Banking began somewhere around in 2000BC when loans were made in the form of grain, food, or cattle money by merchants. They would be given to farmers and traders for the transportation of goods. The first bank in India was The Bank of Hindustan that was established in 1770. The history of Indian banking can be divided into 3 phases.
Pre- Independence Phase: During this time there were more than 600 banks in the country. Most of these banks were very small and did not have the proper facilities or knowledge of how to work so most of them failed miserably.
After Independence Phase (1947-1991): For the Indian economy to enter the top ten economies of the world it was decided that the banks of India should be nationalized. In July 1969 under Prime Minister Indira Gandhi, 14 banks were nationalized.
1991 and Beyond: There was a huge growth of banks all over the country and private entities were allowed entry into the banking system.
Though there are a number of banks in India, the banking system is not the best and there a huge number of disadvantages of the system not only in India but all over the world. Banks both public and private are able to make a huge amount of money off their customers by exploiting them in many ways. In 2017-18 according to economictimes.indiatimes.com 21 public sector banks and 3 major private sector lenders collected a jaw-dropping amount of Rs5,000 crore from customers just because they were not able to keep up with maintaining their minimum balance in their accounts.
Although the fines from half the banks have been reduced, the fines increased by other banks made up for it. According to a TOI report, one of the reasons for this is because banks are trying to make up for losses from bad debts and hence increased their fee collection. IIT Mumbai Professor Ashish Das did a study that showed that some of the banks were charging penal amounts of “more than 100 percent per annum on the shortfall in maintenance of minimum balance in customers' accounts.”
Crypto Lending better than Bank Loans
Banks are popular for many reasons one of the main ones being the ability to take a loan when in need of money. What people fail to understand is that the banking system is exploiting you, especially at a time when you are in desperate need of money so you have no option but to agree to the terms and conditions applied. Crypto loans do not work this way and are both borrower and lender friendly. With so much increase in the appeal of blockchain technology, it is easy to see why traditional finance is slowly becoming less popular around the world. Crypto lending is an easy process that allows borrowers and lenders to connect with each other on a platform. The cryptocurrencies are then received by the lender once the borrower pays back the loan. It is as simple as that.
Cryptocurrency is gaining popularity in the loan market giving banks trouble and competition. A loan provider by the name of Nexo made an announcement in October 2018 that it would be accepting XRP as collateral for loans. Blockchain startup Inlock’s CEO Csaba Csabi said, “The concept of having a collateral class with money-like liquidity is relatively new. The growth will be enormous once major financial institutions realize the opportunity this new form of lending has to offer.”
There are many advantages of cryptocurrency lending. Lenders get an opportunity to generate income by lending crypto which they don’t have any plans of using at that time or later on in the future. Through the use of blockchain technology issuing loans can become much cheaper and transparent. It is also faster than the traditional lending process since creating an account takes a few minutes while the banking routine could take weeks at times. While comparing crypto lending to bank loans it is clear that crypto lending is much better.
TRANSACTION FEES- In crypto lending, there is no transaction fee except for certain platforms and that too is a much smaller amount as compared to banks.
In banking when a loan has requested a fee is charged for processing, documentation, etc.
PAPERWORK- No paperwork is required in crypto lending. One only needs to make an account.
Bank loans require a lot of paperwork which is costly and time-consuming.
GEOGRAPHICAL BOUNDARIES- Crypto lending does not face any trouble related to geographical boundaries and there is diversification to both the borrowers and lenders.
In banking, there are restrictions according to where you are in the world.
Through cryptocurrency is a new way of financial access which is not part of the fiat credit system it is developing and growing. People will be able to tokenize their assets and also be able to raise capital that is in a decentralized marketplace. As said by Theblockcrypto.com “The current trend is that financial institutions are being displaced as lenders in the marketplace. Decentralized technology is enabling individuals to transact among themselves using cryptocurrencies instead of fiat on their own terms.”
Antoni Trenchev managing partner of Nexo which is an online platform that lets users create crypto-backed loans was in an interview with Cryptoinsider that wrote “Mr. Trenchev talks about the advantages of Nexo and reminds us all about the 200+ jurisdictions under which the company operates. As he points out, there are over 40 fiat currencies that can be used to receive this load, and they even include the Nepalese rupee and Thailand’s baht. And after you’ve completed the KYC/AML forms and your loan gets approved, you can get a credit/debit card to spend the fiat.
In terms of interest rate, Antoni Trenchev talks about a fixed cap of 16% for general loans, which decreases to 8% for those who use the Nexo tokens. Most well-established cryptocurrencies can be used as collateral for the loan, and their list seems to expand over time.”
Hence, it is clearly visible how much more advantageous crypto lending is as opposed to taking a loan from a bank. It is time for people to become more aware of this and understand how banks are exploiting customers, especially those who are in need of financial aid.
Though people who work in banks are meant to be honest and law-abiding employees, many times this is not the case and there are a huge number of frauds that take place all the time. Let’s look into some of the major fraud cases that have taken place in India.
BANK OF MAHARASHTRA, CENTRAL BANK, ORIENTAL BANK of COMMERCE, IDBI: In 2011 there was a major scam involving four nationalized banks- Bank of Maharashtra, Central Bank, Oriental Bank of Commerce, and IDBI who had opened 10,000 fictitious accounts and had transferred different types of loans which were worth Rs. 1,500 crore. The biggest one was a non-existent firm that was based in Gujarat by the name of Biotor Industries. It was given loans worth Rs. 500 crore allegedly in the name farmers. According to a report by NDTV.com in June 2011 “OBC & Central Bank of India had the maximum exposure of Rs. 120 crore each, while IDBI had Rs. 115 crore and Bank of Maharashtra, Rs. 50 crore.”
NIRAV MODI SCAM- Everyone is familiar with this scam involving the well-known jeweler Nirav Modi and his uncle Mehul Sirakshi. The Rs. 11,000 crores fraud was caught when PNB filed a complaint with the CBI under fraudulent issuing of Letters of Undertaking (LOU). Diamond firms had approached the bank and had requested for Buyer’s Credit so that they could make payments overseas.
Since there was no sanctioned limit the PNB branch officials had asked the firms to provide a 100 % cash margin for issuing the LOU. The Modi firms insisted they had this facility in the past though there was no such record of this with the branch. It was then discovered that two PNB employees had issued LOUs before without taking the necessary approvals. They had transmitted SWIFT instructions to the overseas branches of the Indian banks for raising Buyer’s Credit and had not made any entries to avoid suspicion.
PNB warned 12 other banks by revealing the modus operandi and wrote a letter stating, “It was found through SWIFT trail that one 'junior level' branch official unauthorized and fraudulently issued Letter of Undertakings (LOUs) on behalf of some companies belonging to Nirav Modi Group viz. Solar Exports, Stellar Diamonds and Diamond R US for availing buyers credit from overseas branches of Indian banks." As many as 20 PNB officials were suspended. According to a CBI report, Modi had also bribed an official with gold and diamond jewelry.
VIJAY MALLYA FRAUD CASE: Vijay Mallya The King of Good Times has also not been the King for a quite a few years now, and has been running from 17 banks to whom he owes around 17,000 crore. Auditors and bankers are as responsible for this mishap. Previous auditors PwC did not seem anything was wrong and it was not until a member of Grant Thornton and then by BSR Raut & Co raised some red flags.
Even then the Rs 2,100 crore did not seem to the interest of the Ministry of Corporate Affairs (MCA) enough. As written by money life.in in September 2018, “Dr. Kirit Somaiya, Member of Parliament (MP), wrote a letter on 21 March 2016 insisting that ICAI, MCA, Securities, and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Enforcement Directorate (ED), Central Bureau of Investigation (CBI) and bankers should initiate strong action against PwC who were acting as facilitators to the promoters and scamsters in various scams such as Global Trust Bank (GTB) scam, Satyam scam, Vijay Mallya, Kingfisher Airlines and UB scam.”
They also wrote, “Bankers, on their part, have been guilty of little due diligence: inflated cost of capital equipment through over-invoicing is hardly checked, poor monitoring of loans post disbursal, ever-greening of loans to avoid recognition of losses and extension of loans to well-connected promoters, despite a history of defaults.”