ppt sm harshad mehta scam
TRANSCRIPT
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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