PRESTIGE INSTITUTE OF MANAGEMENT AND

RESEARCH

PRESENTED BY:-
PRESENTED TO:-
Ankit Gupta
Dr. Gagan Bhati Isha Arora
Nitish Sethi
Pooja Nagpal
Samyak Jain
Sejal Jain
HARSHAD MEHTA
SCAM
 Harshad Shantilal Mehta was an Indian stock
.

Introduction
broker, born in a Gujrati Family on 29 July 1954.

 He spent his early childhood in Kandivali, where

his father was a small textile businessman.

 After completing his schooling he came to

Mumbai for studies and to find work. He completed
his B.Com in 1976 from Lala Lajpatrai College,
Mumbai 

 In the initial years he worked in number of odd

jobs related to sales including hosiery, selling
cement and diamonds etc.

 While working as a salesperson in New India

Assurance Company Limited (NIACL) he got
interest in Stock Market, then he resigned and
joined a brokerage firm and to learn more about the
stock market he started working as a jobber for the
broker Prasann Pranjivandas Broker, whom he
considered his “Guru”.
After working for different brokerage firms and gaining experience, Harshad Mehta joined Bombay Stock
Exchange (BSE) as a broker by establishing his own consultancy firm “Grow More Research and Asset
Management” in 1984. He actively started to trade in 1986. Over these 10 years, by 1990 he gained a
prominent position in the stock market. Media and popular magazines like “Business Today” started calling
him “Big Bull” and “The Amitabh Bachchan of the stock market”.

His lifestyle included a sea facing 15,000 square feet penthouse in Mumbai’s Worli, with a mini-golf course
and swimming pool. Along with all these, he owned expensive luxury cars such as Lexus Starlet (worth Rs
40 Lakh), Toyota Corolla, Toyota Cera and many more fancy cars. All in all, he used to live a luxurious life
which people could only dream of.

Ready Forward
(RF) Deal
Statutory Liquidity
Ratio (SLR)
It’s mandatory for the
banks to maintain a
certain thershold (in
1990’s it was set to
38.5%) of government
fixed interest bonds. This
minimum percentage of
government bonds which
banks have to maintain is
called Statutory Liquidity
Ratio (SLR).
Financial Terms Related to Security Scam 1992 —
Why BR, Not the Securities
— Because the bond certificated
Bank Receipt held by the bank would be of bonds
(BR)  worth 100 Crore, whereas the
The borrowing bank requirements of the banks to
instead of actually maintain their SLR ratio would be
giving the securities lower. Thay is why BR’s were much
(the government more convenient way of short term
bonds) gave a BR transfer. BR’s were used so that the
which was proof that actual transfer of the securities does
the money is not take place, BR’s could simply be
is a secured short received and in cancelled and returned once the
term loan (15 days case of default the deal was completed.
to one month) from securities will be
one bank to another given. So BR is a
bank. In this deal, kind of “I Owe You
(IOU)” receipts.
the collateral is
government bonds.
Ready Forward Deal
 Roles played by
Brokers in the market played the role of intermediaries
between two banks in the RF Deal system, by helping
borrowing banks meet lending banks. The actual exchange

Brokers
of the securities and payments should have taken place
only between the banks, but Brokers soon found a way to
play a larger role. And eventually all the transfer of
securities and payments were made to brokers, and banks
also wecomed this because of the following reasons

Liquidity as brokers provided quicker and easier

alternative in comparsion to dealing with another bank. $ $ $ $ $ $ $
Secrecy as lending banks were not aware about to
where the loans are being moved to and the
borrowing banks were not concerned about from
where the loans are coming from.

Credit Worthiness as brokers were handling the

settlement process which benefitted the borrowing
banks as they can have loans available regardless of $ $ $ $ $ $ $ $ $
their credit worthiness.

$ $ $ $ $ $ $ $ $ $
 Role
played by
Harshad
Mehta
How Harshad Mehta did Security
Scam?
 Harshad Mehta convienced the banks to draw the checks in his name. He then managed to transfer the money deposited
in his account into the stock markets. Harshad Mehta took the advantage of the broken system and took the scam to the
next levels.

 Normally, in a RF deal there would be only two banks involved. What Harshad Mehta did here was that when a bank
requested for its securities or cash back, he started to reach out to new bank, and eventually third bank, forth bank and so
on.

 Instead of having just two banks involved, there were now a lots of multiple banks involved and all were connected by a
web of RF deals.
How Harshad Mehta did Security Scam ? — More About the Scam
Harshad Mehta used the money which he got from the banks
to combat with the bear cartels in the stock market. Bear
Cartels were also operating the stock market with money that
hey cheated out from the banks to drive the market downside
to undervalue the stocks and securities. Counter to this
Harshad Mehta was pumping money from the banks which
was temporarily in his account, into the stock market to keep
the demand high in market. He was having such a influence
in the stock market that his words were blindly followed.
Some of the popular stock manipulated by Harshad Mehta
He invested in different
As Harshad Mehta was investing money from the banks into the
stock market, where he manipulated shares of some companies
like ACC, Videocon, Sterlite Industries and just brought these
companies such as  
companies shares to hike up the demand dramatically. He then
used to sell those shares and returns the money to the banks and • ACC,
keeps the profit with himself. The price of ACC rise from Rs. 200 to • Videocon,
nearly Rs. 9000 in span of 3 months. • Sterlite
• Apollo Tyres,
• Reliance,
• Hero Honda,
• Tata Iron and Steel
Co (TISCO),
• BPL 
In the period between April 1991 to April 1992, the Sensex returned 274 percent,
moving from 1194 points to 4467, that is the highest annual return of the index.
 The Scam 2. Fake Government Bonds 

within the Also to eliminate the collateral he forged government bonds

themselves. However this forgery amounted for a very small amount of
funds misappropriated.

Scam —
1. Fake BR Scam

Mehta perfected the art of using fake BR’s to obtain unsecured loans
from the banking system, as he noticed it very early the dependency of
RF Deals on BR’s.

To get the fake BR’s he presue some small and little known banks like
The Bank of Karad (BOK) and The Metropolitan Cooperative Bank
(MCB), to issue the BR as and when required. With the help of these
two banks he was able to forge the BR’s which were not backed by any
securities —

And he further pumped all this money into the stock market..
 The climax : The discovery of the Rs
500 Crore SBI ‘loot’
In March 1992, CL Khemani, deputy managing director, treasury and investment management at SBI told RL
Kamat, the deputy general manager, to start reconciliation work so that SBI’s books balanced with the PDO
records as on 31st March 1992.

The records were maintained by R. Sitaraman, a junior management grade officer, who later emerged as a
key figure in the 1992 Harshad Mehta scam. After the reconciliation, there was a difference of 74 crores
between SBI books and PDO records. Khemani became suspicious and asked the assistant manager to get
the original records from the PDO.

On 11th April 1992, SBI’s balance of the 11.5% central loan of 2010 maturity was 1170.95 crores whereas
someone had altered the PDO statement so that Rs 1170.95 crores read as Rs 1,670.95 crores. Someone had
looted the biggest bank in the country, the banker to the government worth Rs 500 crores.

After the questioning of R Sitaraman, it was revealed that the mastermind behind the Rs 500 crore loot was
none other than the big bull, Harshad Mehta. Harshad Mehta was immediately called in the SBI branch and
was asked to pay the bank or deliver the securities.

The market was down and therefore he couldn't sell his shares and pay back the money. Also the bank
receipts issued to the SBI were fake, so they had no underlying securities.
Who exposed Harshad Mehta
Scam ?

Journalist Sucheta Dalal exposed
the scam on 23rd April 1992 in the
columns of Times of India. Also in
the inspections and audit
conducted by RBI revealed that
the amount represented by BR in
circulation was significantly higher
than the government bonds
actually held by the banks.
Sucheta Dalal got interested after
she saw him driving up at State
Bank of India offices. Also the
bear cartel ganged up on Mehta
blew the whistle on him to get rid
of him and the bullish run.
 The scam’s exposure led to the suicide of the chairman of Vijya
Bank who issued check to Mehta. Harshad Mehta was convicted
IMPACTS
by the Bombay High Court and the Supreme Court of India for his
part in this financial scandal valued at Rs 5000 crore, (USD $
740 million).

 The stock market was crashed and most of the investors lost
their money. Also banks asked Harshad for their money back, but
because of the Bear run, Harshad could not return their money
back. Securities and Exchange Board of India (SEBI) even
banned him from permanent trading in stock market.

 After the scam was exposed, Harshad Mehta was arrested by

the Central Bureau of Investigation (CBI) in November 1992. He
was charged with 600 civil action suirts and 70 criminal cases.

We 3Create
 After monthsQuality
in jail, heProfessional
was released (his case was handled
by lawyer
PPT Ram Jethmalani) but in 1997 he was again arrested
Presentation
and had been put in Thane jail.
HIS DEATH
On 31, December 2001, when
everyone was celebrating the Happy
New Year, he complained of pain in
his chest pain and was admitted
to Thane Civil Hospital. But he lost
the fight against life and died. Before
his death, out of 27 criminal cases,
he was only convicted of four cases..
 Infographic
BRIBE TO Style
PM NARSHIMHA RAO
 How Harshad Mehta Scam changed Dalal Street ?
The scandal exposed the loopholes in the Indian Banking System, Bombay Stock Exchange (BSE)
transaction system and SEBI further introduced new rules to cover these loopholes.
LEARNINGS

People generally makes mistakes when

guided by emotions.
2 1 Greed digs its own grave.

3
Always have patience in life and stock
market as well.

4
When everyone is busy in the game,
keep an eye in the field.

5
STOCK MARKET can also be called as
SHOCK MARKET because It can surprise

6
Never ever Invest your money in stock you anytime and you should better be
market by lending money or by loan or prepared to face it better.
by promising assured returns . Stock
Market can do anything at anytime !!
.
 Place Your Picture Here And Send To Back

CONCLUSION

•The Harshad Mehta scam can be looked at from two sides. The first is a scam where Harshad looted
the stock market and the public or the second way where Harshad Mehta was made the scapegoat as
someone had to be blamed and at the same time kept other influential people away from the limelight. 

•Greed digs its own grave.

•The dialogue “It takes time to build business and timing to destroy it all” reveals the meaning of this
lesson. Harshad was soaring with unimaginable success. He had the trust of many people. However, he
fell victim to his own greed. He crossed one line after another and eventually did something that
identified as a scam.
THANKYOU