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    Harshad Mehta Scam

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    Ashu Jain
    This document summarizes a presentation on the 1992 Harshad Mehta securities scam in India. [1] The scam involved the diversion of over 3,500 crore rupees from banks to stockbrokers through illegal transactions in government securities from 1991-1992. [2] Harshad Mehta exploited loopholes to siphon funds from inter-bank transactions and drive up stock prices. [3] The impact was massive, with the stock market index falling by over 50% and widespread losses for banks, companies, and investors totaling over 100,000 crore rupees.

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    Harshad Mehta Scam

    Uploaded by

    Ashu Jain
    1K views16 pages
    This document summarizes a presentation on the 1992 Harshad Mehta securities scam in India. [1] The scam involved the diversion of over 3,500 crore rupees from banks to stockbrokers through illegal transactions in government securities from 1991-1992. [2] Harshad Mehta exploited loopholes to siphon funds from inter-bank transactions and drive up stock prices. [3] The impact was massive, with the stock market index falling by over 50% and widespread losses for banks, companies, and investors totaling over 100,000 crore rupees.

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    This document summarizes a presentation on the 1992 Harshad Mehta securities scam in India. [1] The scam involved the diversion of over 3,500 crore rupees from banks to stockbrokers through illegal transactions in government securities from 1991-1992. [2] Harshad Mehta exploited loopholes to siphon funds from inter-bank transactions and drive up stock prices. [3] The impact was massive, with the stock market index falling by over 50% and widespread losses for banks, companies, and investors totaling over 100,000 crore rupees.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    1K views16 pages

    Harshad Mehta Scam

    Uploaded by

    Ashu Jain
    This document summarizes a presentation on the 1992 Harshad Mehta securities scam in India. [1] The scam involved the diversion of over 3,500 crore rupees from banks to stockbrokers through illegal transactions in government securities from 1991-1992. [2] Harshad Mehta exploited loopholes to siphon funds from inter-bank transactions and drive up stock prices. [3] The impact was massive, with the stock market index falling by over 50% and widespread losses for banks, companies, and investors totaling over 100,000 crore rupees.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 16

    Presentation on-

    Harshad Mehta Scam


    Guided byProf. M. Bhatia Presented byAshish Jain Rohan John Solomon

    1. Introduction. 2. Main issues in scam. 3. Unethical Issues. 4. Impact of the Scam. 5. Ethical issues & Govt. measures. 6. Conclusion.

    The Securities Scam


    The Securities Scam referred to a diversion of funds to the tune of over Rs. 3,500 crores from the banking system to various stockbrokers in a series of transactions (primarily in Government securities) during the period April 1991 to May 1992. Harshad Mehta was an Indian Stockbroker and was alleged to have engineered the rise in the BSE stock exchange in the year 1992. Exploiting several loopholes in the banking system, Harshad Mehta and his associates siphoned off funds from inter bank transactions and bought shares heavily at a premium across many segments, triggering a rise in the Sensex.

    Introduction
    In April 1992, the first press report appeared indicating that there was a shortfall in the Government Securities held by the State Bank of India. In a little over a month, investigations revealed that this was just the tip of an iceberg which came to be called the securities scam, involving misappropriation of funds to the tune of over Rs. 3500 crores. In an ever expanding ambit, the scam has engulfed top executives of large nationalized banks, foreign banks and financial institutions, brokers, bureaucrats and politicians. The functioning of the money market and the stock market was thrown in disarray.

    The Mechanics of the Scam


    READY FORWARD DEAL: It is in essence a secured short term (typically 15 day) loan from a bank to another bank.

    ISSUE BR

    BR

    BORROWER BANK
    FUNDS

    BROKER
    FUNDS

    LENDER BANK

    Bank receipt
    It acts as a receipt for the money received by the selling bank. Hence, the name bank receipt.
    It promises to deliver the securities to the buyer. It also states that in the meantime the seller holds the securities in trust for the buyer. Harshad Mehta needed banks which issued fake BRs not backed by any government securities.

    Two small and little known banks - the Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) issues BRs. Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to harshad Mehta, assuming that they were lending against government securities when this was not really the case. This money was used to drive up the prices of stocks in the stock market. When time came to return the money, the shares were sold for a profit and the BR was retired. The money due to the bank was returned.

    BORROWER BANK
    BANK OF KARAD & METROPOLITAN CO-OPERATIVE BANK (MCB)

    ISSUED FAKE BRS

    FAKE BR

    LENDER BANKS
    SBI UCO STANDERED CHARTERED NHB CANARA BANK GROUP ANDHRA BANK GROUP

    BROKER
    HARSHAD MEHTA

    FUNDS

    Unethical Issues In Mehta Scam


    Imaginary companies created Bought the shares of own company by himself causing Sensex up Purchased Huge amount of shares of a targeted company like ACC . Caused false bull run Created fake BRs, or BRs not backed by any government securities Illegally issue of BR by small bank Without verification, banks like Vijaya Bank issued the cheque. Recommendation to purchase particular shares on his own website

    IMPACT OF SCAM
    Index fell from 4500 to 2500,leads to loss of Rs.100,000 crore in market. All banks & financial institution start demanding to return the funds.

    Shares were tainted.


    Genuine investors fell like robbed, chaotic condition in stock market. Government Liberalization policies on hold. SEBI postponed sanctioning of private sector mutual fund.

    Direct effect on FDI ,as entry of foreign pension funds and mutual funds becomes rare. The Euro-issues planned by several Indian companies were delayed. Adversely affect 15 major commercial banks of India, foreign banks and NHB(national housing bank) When the scam was revealed, the Chairman of the Vijaya Bank committed suicide by jumping from the office roof, because of his active involvement in issuing cheques to Mehta.

    Government Measures and Ethical Issue


    The response of any government to a scam of this kind would have three main facets: Discover and punish the guilty Recover the money Reform the system

    Role of SEBI (Ethical Issues)


    The SEBI was set up in early 1988 as a non statutory body under an administrative arrangement and was subsequently upgraded as a fully autonomous body on 12th of April 1992. The two objective s mandated in the SEBI Act are 1. investor protection 2. orderly development of capital market.

    Conclusion
    There was a total lack of transparency in the money market. Irregularities of all kind were so common that no suspicion aroused even by highly irregular transactions. This is the ideal environment for a scam to germinate and grow to alarming proportions.

    Thank You

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