Published on March 8, 2014
Shikha Sota Harshad Mehta Scam
About Harshad Mehta
About Harshad Mehta • From a small town boy to mega star of Indian stock markets • Also known as the “Big Bull” & “Pied piper”
Overview of the Scam • Triggered a rise in the BSE between April 1991 to May 1992. • Traded shares at premium • Diverted funds of Rs 40 billion
Diversion of funds Banks to Brokers
Details of the Scam The Ready Forward Deal • • • • A short term secured loan Typically for 15 days By one bank to another Against government securities.
Details of the scam The Bank Receipt • Something like IOU (I Owe You Securities) • Confirms the sale of securities • Acts as a receipt for money received by the selling bank • Promise to deliver the securities to the buyer
Impact of the Scam • Sensex fell from 4500 to 2500 loosing 100,000 crore in market capitalization • The liberalization policies were put on hold by the government. • Inability of Indian companies to raise capital in world markets
Corporate reaction • Adversely affected major banks of India • Arrest of people holding key positions
Remedial measures • Special court set up for the trail • Special ordinance passed- creation of tainted shares • Banning of RF deals. • Various committees were set up
Implementation • Harshad Mehta arrested • Charged with 72 criminal offences • Prosecuted for 2 cases Use of Maruti Udyog Ltd funds to the tune of Rs 300 million Misappropriating shares worth Rs 2.50 billion of 90 blue chip companies.
Critical appraisal • Government, RBI & Banks as much responsible as brokers. • Some more followers of the “Big Bull” Ketan Parekh, C.R. Bhansali
Recommendations • A counterparty limit is required • Money market operations should be transparent and open. • More fair methods for recovery of money.
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