Presentation on Harshad Mehta Scam of 1992.

2. O One of the biggest scam in India in the
year 1992.
O 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.
O The stock market crashed as soon as this
scam was exposed.

3. O 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 .
O Harshad Mehta took advantage of two major
loopholes in the banking system and siphoned off
₹3500 crores.
O The funds were majorly invested in the stock market.

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

5. O 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.
O Two banks were involved in this scam i.e. Bank Of
Karad (BOK) and Metropolitan Co-operative Bank
(MCB).
O The fake BRs were used to transact with the
banks.

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

8. O The scam came to light when the State Bank of
India reported a shortfall in government securities.
O That led to an investigation that later showed that
Mehta had manipulated around Rs 3,500 crore in
the system.
O 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.

10. O He was charged with 72 criminal offences, and
more than 600 civil action suits were filed against
him.
O 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).