Is this how India’s new Rs 2000 and Rs 500 notes leak out of banks?

Nothing Has Changed Since The Nagarwala Scandal Of 1971

Around noon on May 24, 1971, V P Malhotra, chief cashier of State Bank of India’s Parliament Street branch in New Delhi, was chatting with his colleagues. When the phone rang, he reached for it unhurriedly, but the next moment he sat up straight.

“You just wait a minute and I will let you know whether Rs 60 lakh (Rs 6 million) can be withdrawn,” he said in an ingratiating tone. When he spoke next, his voice was worshipful: “Namaste Mataji (mother). I am an old soldier. Everything will be done.”

What Malhotra promised to do, and did, became perhaps the greatest scandal of 1971 in India, but let’s fast-forward 45 years to a minor news report that has already been forgotten.

On December 29, 2016, the manager of State Bank of India’s Navyug Market branch in Ghaziabad, a satellite city of New Delhi, transferred roughly a million rupees (Rs 9.85 lakh) from a vehicle dealer’s bank account to a jeweller’s account on the basis of a telephonic request. There was no written instruction at all. The bank manager did not know the vehicle dealer well enough, so how did he recognise the voice and transfer money on trust?

Those are questions for police and the bank management to answer, but they leave you wondering about the way banks function in India. And then, the frequent seizures of new and scarce Rs 500 and Rs 2,000 notes do not seem so mysterious.

Back to Malhotra and 1971

Half an hour after the ‘important’ phone call, chief cashier Malhotra was driving the bank’s staff car towards Sardar Patel Marg with Rs 6 million (about Rs 140 million in today’s rupees) in 100-rupee notes kept inside a bag beside him. He had withdrawn money from the bank’s currency chest without any paperwork, and left telling the deputy head cashier that he would give a voucher shortly.

Two hours later, Malhotra was at the Parliament Street police station recording a complaint about being conned. The man who had called him to SP Marg had transferred the cash to a waiting taxi and told him to collect a receipt for it from the Prime Minister’s house. And, of course, PM House had no such receipt to give him.

How did Malhotra, a banker of 26 years’ experience, fall for such a plain lie? Many stories have been told. One goes that it was all part of an elaborate conspiracy to malign Prime Minister Indira Gandhi. Malhotra claimed the caller had identified himself as P N Haksar, the Prime Minister’s influential principal secretary at the time, and the second voice had been that of Indira Gandhi herself.

The financial loss was minimal because that same night police caught the culprit, Rustam Sohrab Nagarwala, with only Rs 5,700 missing from the loot. Later, Rs 2,600 more was recovered from one of his friends. But the news was not about to die down. It turned into a major scandal after Nagarwala was tried, convicted and sentenced within five minutes entirely on the basis of his confession, on May 27. The cop who had tracked him down was immediately promoted from deputy superintendent to superintendent of police.

The Opposition mocked it as a ‘supersonic’ trial and a cover-up. Later, the case was reopened and took many interesting turns, but bidding Malhotra and Nagarwala adieu, let’s attend Parliament on May 28, 1971, where Opposition MPs are asking searching questions about the functioning of India’s banks. The same questions arise now when large numbers of new high-value currency notes are seized from influential people while the common man wastes days in bank queues.

What angry MPs said

M K Mohta (Rajasthan) asked why Malhotra had not called back PM House to confirm whether he had indeed been speaking to P N Haksar and Indira Gandhi. “How is it that an ordinary employee of the State Bank has such wide power that he can take such a large amount of money without the consent of the higher officers of the bank, without any document, without either a cheque or a pay order or any other document asking the bank to pay this money? If I go to the State Bank as a client, to encash a cheque it takes 40 minutes or more, but here is a gentleman who pays out Rs 60 lakh on a telephone call. How is this possible?

N R Muniswamy from Tamil Nadu asked whether it was usual for bank officers to get such calls from politicians: “Malhotra acted on the basis of a telephone call… It seems, unless he had done like that earlier, he could not have done this time.”

A D Mani (Madhya Pradesh): “Doesn’t Nagarwala seem to have an intimate knowledge about the way nationalised banks are functioning? He does not go to any other bank. He contacted the chief cashier on the phone for the withdrawal of money…”

Bhupesh Gupta (West Bengal): “A big box was being removed from the vault, then the man disappears in a taxi somewhere. Why was this not noticed by other important people in the bank? Are we to suppose that they were under the influence of charas (hashish) or something, or some drug…unless of course such operation has been usual in the past?”

Government’s reply

At the end of the debate, then finance minister Y B Chavan admitted “As far as the bank management is concerned, certainly it requires to be looked into when such a thing happens, and it seems there is some lacuna somewhere and we shall have to go into it.”

It’s been 45 years and India has seen governments of every colour but her banking arrangements still seem quite porous and flexible, judging by the daily seizures of new high-denomination notes.



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Create a free website or blog at

Up ↑

%d bloggers like this: