The true tale of Harshad Mehta is one of india’s financial scams.
Who is Harshad Mehta?
Harshad Mehta was a stockbroker who first became well known in the latter part of the 1980s and in the early years of the 1990s. He earned himself the nickname of ”The Big Bull” because of his aggressive buying of stocks which pushed prices up.
Operation of the scam
At the time, Indian banks dealt in the government securities using a mechanism known as Ready Forward (RF) deals. This was exploited by Mehta.
His primary techniques were:
Use of bank funds illegally
There were enormous transfer of funds from banks for securities dealings. But Mehta siphoned off some of the money for stock market dealings.
Phony Bank Receipt (BRs)
The Bank Receipt was meant to serve as proof that the transaction was guaranteed by the government securities. Certain banks provided false BRs. Other banks accepted such BRs and disbursed the money, which Mehta used for purchasing stocks.
Inflating share prices artificially
He invested large sums of borrowed funds in carefully selected stocks like ACC. As demand increased, the prices skyrocketed. At extremely inflated prices, he cashed out on his gains.
How the fraud was detected
Sucheta Dalal detected the dubious transactions in The Times of India on 23 April 1992. It was discovered that there had been misappropiation of funds from the banks and the circulation of bogus receipts.
Impact
The total loss from this scam is estimated to have been around rs. 4000 – rs. 5000 crore, which is a staggering sum even by today’s standards. The aftermath of this fraud was:
The Indian stock markets crashed. There were many losers of money. Many banks had to make heavy losses.
Whare is Harshad Mehta now?
He got himself arrested, and had to deal with lots of criminal and civil cases. He was in jail while the trials were going on. He died of a heart attack in 2001 at the age of 47.
Has the scam affected india?
Yes. These are the changes that occurred due to the scam:
Greater powers to Securities and Exchange Board of India (SEBI). Improved regulation of banks and stock exchanges. Institution of electronic trading and settlement systems. Increased regulations for securities trading.
Was Scam 1992 a true portrayal?
Scam 1992: The Harshad Mehta Story is inspired from reality, with the show being an adaptation of the book The Scam written by Debashis Basu and Sucheta Dalal. It does contain the basic truth about Mehta’s success and failure despite having a few fictional elements.
To put it simply, Harshad Mehta took advantage of loopholes in the banking system, raised the price of stocks significantly and made substantial gains, and once the fraud was exposed, a market crash ensued and india’s financial system was never the same again.
