Harshad mehta scam (1992)

Presentation on Harshad Mehta Scam of 1992.

1. HARSHAD MEHTA SCAM (1992)

2. HIGHLIGHTS One of the biggest scam in India in the year 1992. It was alleged that Mehta engaged in a massive  stock manipulation  scheme financed by worthless bank receipts, which his firm brokered in "ready forward" transactions between banks. The stock market crashed as soon as this scam was exposed.

3. BACKGROUND OF THE SCAM In 1984, Mehta was able to become a member of the Bombay Stock Exchange as a broker and established his own firm called  GrowMore Research and Asset Management . Harshad Mehta took advantage of two major loopholes in the banking system and siphoned off ₹3500 crores. The funds were majorly invested in the stock market.

4. THE LOOPHOLE IN RF DEAL The READY FORWARD deal is basically a secured short term (typically 15 day) loan from one bank to another against government securities. The banks were expected to post profits and to retain a certain ratio (threshold) of their assets in government securities. Harshad Mehta acted as a broker between the banks He took advantage of the fact that there was anonymity between the buyer bank and seller banks .

5. BANK RECEIPT SCAM In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower, i.e. the seller of securities, gave the buyer of the securities a BR . Two banks were involved in this scam i.e. Bank Of Karad (BOK) and Metropolitan Co-operative Bank (MCB). The fake BRs were used to transact with the banks.

6. Harshad Mehta utilised the funds by investing them in the stock market. Stock price of ACC rose from ₹200 to ₹9000 The BSE Sensex rose from around 2,000 points in January 1992 to 4,467 points in April that year. The investors started showing interest in the stock market as the market was booming. Harshad Mehta in this way used to earn profits by buying and selling the shares.

7. END OF THE SCAM The scam came to light when the State Bank of India reported a shortfall in government securities . That led to an investigation that later showed that Mehta had manipulated around Rs 3,500 crore in the system. On August 6, 1992, after the scam was exposed by the journalist Sucheta Dalal , the markets crashed by 72 percent leading to one of the biggest falls and a bearish phase that lasted for two years. 

8. Trial and Conviction He was charged with 72  criminal offences , and more than 600 civil action suits were filed against him . Mehta and his brothers were arrested by the CBI on 9 November 1992 for allegedly misappropriating more than 2.8 million shares (2.8 million) of about 90 companies, including ACC and  Hindalco, through forged share transfer forms. The total value of the shares was placed at ₹2.5 billion (US$35 million).