An actual business with a factory is going to look like pretty good collateral to a bank making a loan, but the bank loses money on the loan when the company goes bankrupt. It’s not in the bank’s interest to do this. But bank employees could’ve been bribed, sure.
So this sounds like a form of “long firm fraud” or maybe “control fraud.” For more about it, I recommend reading
Lying for Money: How Legendary Frauds Reveal the Workings of Our World.
I think gp's saying that the banks are in on it. ie. they knew in advance that the loan was going to go bad, but that was fine to them because they saw as a price of gaining favor (bribe).
Banks don't benefit from these schemes. Nor do they sell these loans to third parties either in bulk or in tranches. In India, major banks are partly owned by the government, even though these banks are listed on their stock exchanges.
So, it is a form of collusion between bank executives and powerful loanees. Who holds the bag? Usually the government in the Indian case: for instance, Indian govt has 61.23% ownership in State Bank of India, a large bank in India. In India, many politicians are also businessmen--real or fake; these people with dual masks (politician and businessman) are so good at scamming the govt, banks, public works contracts.
It could be some sort of scheme where the politicians does some sort of favor for the bank, eg. expediting their paperwork, awarding them contracts. However, as the sibling commenter mentioned, it could also be that the bank executives are abusing their position and taking all the gains.
You're over thinking it. Stock in the these banks are majority held by the Governments and the rest largely by individuals/mutual funds/pension funds. So when these loans become "non-performing", the people left holding the bag are the common tax-payers. This is simply a less easily detectable way of stealing public money and usually there's some under the table incentives to the individual bankers approving this stuff, together with threat of political strong arm if not.
Awarding government contracts to companies owned by relatives and political allies is another way though that's more easily detected.
Indian banks are public, government owns majority share in them. It's ultimately the government shareholders and general public who loses when tons of loan suddenly go NPA.
As someone whoes family is in banking, it's not a low level employees at bank who is bribed. High level executive at a bank is pressured into passing a loan for a project which otherwise wouldn't pass bank's strict loan approval in return sometimes the high level executive will be offered financial favours when he would have retired
Sometimes the high level executive would have sent his son or daughter to US or UK for studies and suddenly they turn millionaire and banker claims they made good business there but infact it's the money laundered to UK from India, ending up in their foreign bank accounts
Today you don't need banks to make money as politician.
Modern scheme in India:
1. Get citizens excited about new infra projects using tons of advertisements, and propoganda YouTube channels
2. Open a tender for the project
3. Pass on the bids to your favourable "company"
4. Now this favourable company puts in the winning bid and wins
5. Favourable company sends money to the political party through electoral bond
6. favourable company which is now a contractor on infra projects is forced to accept subcontractors who are usually acting as fronts and belong to family members of the politicians. These subcontracting firms either outsource the real work or they get into brand/asset building with public money.
This scheme works really well as they are skeaming off 20% of the project budget through various contractor companies and general public has no way to figure out anything.
This percentage scheme is there forever. Even L&T IDPL has to pay kickbacks; here, L&T pays to Chief ministers, etc.
However, if one wants to pull off 2000 crores ($300M USD) scam, it is done through banks. Here are two recent examples from the state of Andhra Pradesh:
1. Rayapati Sambasiva Rao, Ex MP 8000 Cr (1B USD)
2. Sujana Chowdary, MP, 5700 Cr (750M USD)
