Harshad mehta scam
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Transcript of Harshad mehta scam
Harshad Mehta Scam
Shikha ota
About Harshad Mehta
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About Harshad Mehta• From a small town boy to mega star
of Indian stock markets
• Also known as the “Big Bull” & “Pied piper”
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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
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Diversion of funds
Banksto
Brokers
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Details of the ScamThe Ready Forward Deal• A short term secured loan• Typically for 15 days• By one bank to another• Against government securities.
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Details of the scamThe 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
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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
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Corporate reaction
• Adversely affected major banks of India
• Arrest of people holding key positions
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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
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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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