Ppt SM Harshad Mehta Scam

8/12/2019 Ppt SM Harshad Mehta Scam

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Economic losses,Mechanism &Impact

of HARSHAD MEHTA

SCAM

presentedbyVENUGUDLA


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OBECTIVES

To know about securities scam

To study about Harshad Mehta Scam

To know the causes of the scam To know who are the other people involved in

the scam

To know mechanism of the scam To know the amount loss to the Indian

economy


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INTRODUCTION TO THE

SECURITIES SCAM

Securities Scam refers to a diversion of

funds to the tune of Rs. 3,500 crores from

the banking system to various stockbrokers

in a series of transactions

Harshad Mehta was an Indian Stockbroker

and is alleged to have engineered the rise in

the BSE stock exchange in the year 1992.


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THE MECHANISM OF THE SCAM

During the scam, however, the banks or at least

some banks adopted an alternative settlement

process normal settlement process

In this settlement process, delivery of securities

and payments are made through the broker

A broker intermediated settlement allowed the

broker to lay his hands on the cheque as it wentfrom one bank to another through him, but they

were crossed cheque.


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Due to delay in clearing process, banks make

payments to each other by writing cheques on

their account with the RBI, these cheques are

cleared on the same day.

The practice which thus emerged was that a

customer would obtain a cheque drawn on

the RBI favoring not himself but his bank. The

bank would get the money and credit his

account the same day.


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This was the practice which the brokers in themoney market exploited to their benefit.

The brokers thus found a way of getting holdof the cheques as they went from one bank toanother and crediting the amounts to theiraccounts.

But this, by itself, would not have led to thescam because the Ready Forward deal after allis a secured loan, and a secured loan to a

broker is still secured. What was necessarynow was to find a way of eliminating thesecurity itself!


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There are three routes adopted for this purpose:

1.Some banks (or rather their officials)

were persuaded to part with cheques

without actually receiving securities inreturn.

2.The second route was to replace the

actual securities by a worthless piece

of papera fake Bank Receipt (BR).

3.The third method was simply to

forge the securities themselves.


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The Bull Run


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Where has all the money gone?

Based on the result of investigations and reporting sofar, the following appear to be the possibilities:

A large amount of the money was perhaps invested inshares. However, since the share prices have droppedsteeply from the peak they reached towards end ofMarch 1992

It is well known that while Harshad Mehta was the &big bull in the stock market, there was an equally

powerful &bear represented by Hiten Dalal, A.D.Narottam and others, operating in the market withmoney cheated out of the banks


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It is rumored that a part of the money was sentout of India through the Havala racket, convertedinto dollars/pounds, and brought back as IndiaDevelopment Bonds.

A part of the money must have been spent as

bribes and kickbacks to the various accomplicesin the banks and possibly in the bureaucracy andin the political system.

Part of the money that went out of the banking

system came back to it. In sum, it appears thatonly a small fraction of the funds swindled isrecoverable.


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Impact of the Scam

The immediate impact of the scam was a

sharp fall in the share prices. The index fell

from 4500 to 2500 representing a loss of Rs.

100,000 crores in market capitalization.

Since the accused were active brokers in the

stock markets, the number of shares

becameworthless pieces of paper as theycould not be delivered in the market.


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The government's liberalization policies came undersevere criticism after the scam, with Harshad Mehtaand others being described as the products of these

policies. Bowing to the political pressures and the bad press it

received during the scam, the liberalization policieswere put on hold for a while by the government. TheSecurities Exchange Board of India (SEBI) postponed

sanctioning of private sector mutual funds. The much talked about entry of foreign pension funds

and mutual funds became more remote than ever. TheEuro-issues planned by several Indian companies were

delayed since the ability of Indian companies to raiseequity capital in world markets was severelycompromised. Impact of the Scam


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CONCLUSIONTHANK YOU

Ppt SM Harshad Mehta Scam

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