I personally don't think of this as a scam. These are legitimate losses made during 2008 during the GFC when all financial markets were going haywire. These 19 banks had done wrong in flouting rules and should be punished, but they never "scammed" 25 lakh crore away. But that wouldn't stop it from making some juicy headlines.
Tehelka - India's Independent Weekly News Magazine
Nineteen banks, which violated the RBI and FEMA guidelines to sell forex derivatives to exporters in 2008, caused a monstrous loss of Rs 25 lakh crore
IT'S A scam with an estimated value of approximately Rs 25 lakh crore, much bigger than the 2G scam that rocked the country in 2010. Nineteen banks, which violated the Reserve Bank of India (RBI) and Foreign Exchange Management Act (FEMA) guidelines to advise and sell forex derivatives to Indian exporters in 2008, resulting in humongous losses to them, have been penalised by the RBI negligible amounts ranging from Rs 5 lakh to Rs 15 lakh each. Several other countries have also faced major economic crises in recent times, as a result of volatility due to similar derivative contracts. Even Barack Obama has noted that unregulated derivative contracts are the main cause of recent financial crises. In the Indian context, the RBI has stated that the losses sustained by customers do not amount to gain by the banks as a result of such derivatives. The question then is — who stands to gain from derivatives during volatility in the money market?
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This figure, however, is contested by Pravajan Patra, an eminent economist, in a PIL filed in the Orissa High Court. His contention is that the total value of derivative contracts sold in India and approved by the RBI is $3 trillion, based on the statement of the then finance minister P Chidambaram in the Rajya Sabha. Compare this to the total GDP of India, which is not more than $1 trillion, or its total export and import (including oil bills), that do not exceed $500 billion a year on average. The fluctuation in the value of the dollar during the period in question in 2008, however, was Rs 8.50-10. If this difference is multiplied by even the (conservative) estimate proposed by Chidambaram, that of $3 trillion, we end up with a loss in excess of Rs 25 lakh crore. Compare this to the estimated loss incurred by the exchequer in the 2G scam — Rs 1.76 lakh crore. Peanuts.
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