too started to fuel his own publicity. He felt proud of this accomplishmentsand showed off his success to journalists through his mansion "Madhuli",which included a billiards room, mini theatre and nine hole golf course. Hisbrand new Toyota Lexusand a fleet of cars gave credibility to his show off. This in no time made him the nondescript broker to super star of financialworld. During his heyday, in the early 1990s, Harshad Mehta commanded alarge resource of funds and finances as well as personal wealth.
WHAT WENT WRONG?
Harshad Mehta was the darling of the stock markets -- a superstar whosepopularity had begun to rival that of a matinee star. He was the cover storyon several magazines and was being shot by audio-visual newsmagazinessymbolically feeding peanuts to bears at the Bombay zoo. The fall In April 1992, the Indian stock market crashed, and Harshad Mehta,the person who was all along considered as the architect of the bull run wasblamed for the crash. It transpired that he had manipulated the Indianbanking systems to siphon off the funds from the banking system, and usedthe liquidity to build large positions in a select group of stocks.In the early 1990s, the banks in India had to maintain a particular amount of their deposits in government bonds. This ratio was called SLR ( StatutoryLiquidity Ratio). Each bank had to submit a detailed sheet of its balance atthe end of the day and also show that there was a sufficient amount investedin government bonds. Now, the government decided that the banks need notshow their details on each day, they need to do it only on Fridays. Also, therewas an extra clause that said that the average %age of bond holdings overthe week needs to be above the SLR but the daily %age need not be so. Thatmeant that banks would sell bonds in the earlier part of the week and thenbuy bonds back at the end of the week. The capital freed in the starting of the week could then be invested. Now, at the end of the week many bankswould be desperate to buy bonds back. This is where the broker comes in. The broker knew which bank had more bonds (called ‘plus’) and which hasless than the required amount (called ‘short’). He then acts as themiddleman between the two banks. Harshad Mehta was one such broker. Heworked as a middle man between many banks for a long time and gained thetrust of the banks’ senior management. Lets say that there are two banks A(short) and B (plus). Now what Harshad Mehta did was that he told thebanker at A that he was dealing with many banks and hence did not knowwho would he deal in the end with. So he said that the bank should write thecheque in his name rather than the other bank (which was forbidden by law),so that he could make the payment to whichever bank was required. Since