The financial institution of any economy works as a foundation of any Finance sector to make the economy run. In India frauds and scams are on the rise which has a drastic effect on the economy. This paper shows how these activities in India have affected the economy of the country. The topic has significance as the working of any country depends on the financial sector of that country. Such scams disturb the whole circular flow in the country which leads to leakage of a fund or financial asset from the economy. The findings of this paper are about how these scams make an effect on the economy. Regulatory and Non-regulatory are two-component of Financial Institution where Regulator of these banks keep check on such scams but are somehow unable to deduct these activities in the earlier stage which result in a scam always highlighted as the biggest scam in history. These Bank scams cause a huge disequilibrium in the economy which often leads to the weakening of the financial market. Due to such scams, stock markets and other financial markets also face huge crashes thereby affecting the economy in a big way. This whole process causes a slowdown in GDP and economic growth which often leads to weakening of the economy and often disappearance of foreign trust and foreign investment whether in the form of direct or portfolio investment.