Harshad Mehta SCAM | Biggest Banking SCAM of India

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Overview of the Harshad Mehta SCAM 

Harshad Mehta Scam

Harshad Mehta was an Indian Investor registered with BSE. He was one of the richest people of India and harshad mehta lifestyle was also very lavish in the early 90s.He gained all his wealth through the Stock Market. If you want to know more about him click on the link below, Harshad Mehta Biography after reading this you will know who Harshad Mehta is?

Now turning towards the SCAM, Harshad Mehta already had the luxurious life which many rich people were not having and he also had very good political and celebrity connections, but his greed of money headed him towards this scam. Harshad Mehta SCAM was executed in the early 90s in 1992-1993, and it also was the biggest stock market frauds in india at that time. This scam by Harshad Mehta shocked the Stock Market of India and destroyed the Indian banking system. The total value of the Scam was 2.5 Billion Rupees ($3.5 Crore USD) which was an enormous amount in that time for the Indian Economy.

Harshad Mehta scam has involved over 2.8 Million shares of overall 90 companies including the top companies like ACC Cement and Hindalco and Videocon. The share of ACC was pumped and pushed to a price of 9000 Rs. from only 200 Rs. During this bullish run the Stock Market was at a peak and everybody wanted to invest in the Stock Market to earn money. And people also started investing in the stocks which Harshad Mehta had in his portfolio. And once the prices go up, Harshad Mehta sold those stocks and earned a huge profit. This cycle continued for a very long time. 

But eventually, CBI found out about these transactions which were taking place through Harshad Mehta and his brothers and CBI took in charge of this operation. As after the investigation, CBI took Mehta and his brothers in custody in November 1992. This news made the market fall badly because everyone was selling the stocks of ACC and other companies which were purchased by Harshad Mehta. This market correction damaged the image of the Stock Market badly and now people were considering it as a gamble. 

And when everybody sold their stocks, Harshad Mehta had lost all his profits and was considered as bankrupt because the stocks he owned were lowered in their price very much after the crash. During the crash, the Chairman of Vijaya Bank had made a suicide because Harshad Mehta also taken money from that bank through fraudulent activities.

Process of the Harshad Mehta SCAM

In simple words, if anyone gets 9% interest on an FD then you will give them an offer of giving 10% interest if they give you their money. But in this case, you will find a way to increase that money on an 18% interest and after earning 18% interest you will give the 10% earning to that person and keep 8% earnings to you without even investing any money of yours. This was the idea behind the Harshad Mehta Scam, which came to his mind after identifying a loophole in the Indian banking system.

In 1990 there was a rule of government in which the Banks have to invest some minimum amount in the government bonds to secure their money for any worse condition. This investment should be done daily and the daily limit of investment can vary, but the investment done in a week should meet the investment threshold or should be more than that. The big banks which were having plenty of cash and could follow this rule but the banks which were small were not able to follow the rule and cannot meet the investment threshold fully. 

Therefore, there was a system in which the banks who had bought more government bonds than the limit would lend their bonds to the banks which are not able to match the limit and this transaction between the banks was done with a BSE approved broker.And here Harshad Mehta entered, he was appointed by BSE as the broker for this banking transactions due to his political connections. 

Harshad Mehta here started practicing his trick, he gave the government bonds from the bigger banks to the needy banks and the money the banks were giving for the bonds were taken by Harshad Mehta in his account. 

Banks gave the money to him because of his political connections and also he had an image of the most trusted broker which again helped him to make this scam successful.

Now after taking money from the banks Harshad Mehta invested that money in some select stocks very aggressively which increased their prices and other investors also started investing in that stocks because they were giving good returns. When the bank gave back the bonds to the bigger bank Harshad Mehta had to give the money back to the banks which he had taken, then for returning that money Harshad Mehta similarly made another deal between other two banks and the money taken from them was given to the previous bank, which helped him continue this cycle. 

And eventually he managed many banks like this, it is said that he was managing more than 20 banks at that time and he became an expert in managing that money and he also wanted to manage more money due to its greedy behavior. He made very much profits through this scheme and his greed increased which led him to do the next gigantic thing. Then he started making fake government bonds and started selling that bond to the bank which made him more money and now he didn't have to deal with the second bank which eased his process very much.

Now when this well-planned scam was going well, Times of India Reporter, Sucheta Dalal exposed this total scam in front of the world by printing it in the newspaper. When the banks knew that they were cheated by Harshad Mehta at this time the Chairman of Vijaya Bank made suicide from the top floor of his office because he had given unauthorized cheques to Harshad Mehta.

The Stock Market was collapsed very badly and a historical thing in that year was founded which was SEBI (Securities and Exchange Board of India) which was specially designed to keep an eye on this type of fraudulent activity in the stock market and prevent the market crashes.

After that, Sucheta Dalal also got awarded with the Padma Shri Award for journalism in the year 2006.