Harshad Mehta exploited loopholes in the banking system in 1992 to siphon off funds from inter-bank transactions and use the money to trigger a rise in stock prices. He did this through fake bank receipts issued by complicit banks that allowed him to acquire money, which he used to purchase shares and drive up prices. When the scheme was exposed by a journalist, banks demanded repayment, causing banks and individuals to lose money. Mehta was later charged with multiple criminal offenses and civil suits, and although he raised further controversy by claiming to bribe politicians, he ultimately died in prison in 2001 while serving time for financial crimes.

1. THE SCAM – HARSHAD MEHTA
AISHWARYA SAINI & SANSKRITI SHARMA

2. HARSHAD MEHTA - TIMELINE

3. THE 1992 SECURITY SCAM
Mehta took advantage of the many loopholes in the
banking system and drained off funds from interbank transactions.
“The crucial mechanism through which the scam
was effected was the ready forward (RF) deal.
The securities and payments were delivered
through the broker in the settlement process.
Mehta and his associates used another instruments
called BANK RECEIPTS.
Armed with these forces, all Mehta needed now
were banks that issued fake BR’s.

4. Stage 1
Bank of Karad (BOK) and the Metropolitan Co-operative Bank
(MCB) agreed to issue fake BRs.
Stage 3
Money thus used to enhance prices in the stock market. Initiating
bull run.
Stage 2
Stage 4
BR passed to another bank, money acquired.
Shares sold for significant profits. BR retired.

5. FAKE
BR
PROFIT
KEPT
SOLD
FOR
PROFIT
BANK
MEHTA
BR
RETIRED
SHARES
BOUGHT
MONEY

6. OUTCOME
Exploiting loopholes in banking system, Mehta siphoned off funds
from inter-bank transactions and using the money to trigger a rise
in the Sensex.
Ten major commercial banks of India affected including a number
of foreign banks operating in India and the National Housing Bank
.
People adversely affected included arrest and sacking of K. M.
Margabandhu, then CMD of the UCO Bank; removal from office of
V. Mahadevan.
Chairman of the Vijaya Bank committed suicide-guilty of having
issued checks to Mehta-afraid of backlash of accusations.

7. EXPOSURE
On 23 April 1992, journalist Sucheta Dalal exposed Mehta's illegal
methods in a column in The Times of India.
Sucheta Dalal reveals Mehta's Scam
The crucial mechanism through which the scam was effected was the ready
forward (RF) deal. The RF is in essence a secured short-term (typically 15day) loan from one bank to another. Crudely put, the bank lends against
government securities just as a pawnbroker lends against jewelry. The
borrowing bank actually sells the securities to the lending bank and buys
them back at the end of the period of the loan, typically at a slightly higher
price. It was this ready forward deal that Mehta and his accomplices used
with great success to channel money from the banking system.
Sucheta Dalal, The Times of India

8. TRIAL & CONVICTION
When the scheme was
exposed, banks started
demanding their money
back,
causing
the
collapse. He was later
charged with 72 criminal
offences, and more than
600 civil action suits
were filed against him.
He was arrested and
banished from the stock
market 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 INR2.5 billion
(US$40 million).
Mehta again raised a
furor in 1995 when he
made
a
public
announcement that he
had paid INR 10 million
(US$160,000) to the then
Congress president and
prime minister, Mr. P.V.
Narasimha
Rao,
as
donation to the party, for
getting him off the
scandal case.

9. Mehta was under
Criminal custody in
the Thane prison.
He died following a
brief heart ailment,
at the age of 47, on
31 of December
2001.
He complained of
chest pain late at
night and was
admitted to the
Thane civil Hospital.

10. THANK YOU