Harshad mehta case
Early 1990s. Harshad Mehta scam.
The top photo is of Harshad Mehta in 1991 with his Lexus and the photo under it is that of the same person but being escorted by police in 1992 for fraud.
Mr Mehta, nicknamed Big Bull, was a flamboyant stock broker of Mumbai who rose to instant fame in 1991 due to his aggressive strategies of stock market. He bought a Lexus, a sprawling house with swimming pool and a golf course!! But not many knew about his fraudulent methods.
He exploited every possible loophole in banking systems to make quick money illegally.
Two such loopholes were Ready Forward (RF) and Bank Receipts (BR). Let me try to explain in simple words how he exploited the system.
At any point of time, there would be banks wanting to sell their securities (like bonds/shares) for cash and there would be banks wanting to buy securities by offering cash. He used to act as a middleman between such banks.
Suppose SBI wanted to sell securities and ICICI wanted to buy securities. He would go to SBI and assure them that he will find a buyer, take their securities and ask for 1 week time for this process.
Then, immediately, he wil go to ICICI and tell them that he will find a seller and take their cash and ask for 1 week time. Doing this way, he ended up having both the securities and liquid cash for 1 week (which was illegal but banks did that because he had gained their trust). Since he would deal with multiple banks, he would tell SBI that he will pay on Monday, then go to Canara bank and say he will pay them on tuesday and so on. It was such a sophisticated pipeline process, the next Monday when he was supposed to pay to SBI, he would make a deal with IDBI, get their money and pay it to SBI, hence getting a breathing time of another week and the cycle would continue. Phew!! This was the Ready Forward loophole.
The next loophole he picked was the Bank Receipt. In the above example, you saw how one bank would give securities and another would
The top photo is of Harshad Mehta in 1991 with his Lexus and the photo under it is that of the same person but being escorted by police in 1992 for fraud.
Mr Mehta, nicknamed Big Bull, was a flamboyant stock broker of Mumbai who rose to instant fame in 1991 due to his aggressive strategies of stock market. He bought a Lexus, a sprawling house with swimming pool and a golf course!! But not many knew about his fraudulent methods.
He exploited every possible loophole in banking systems to make quick money illegally.
Two such loopholes were Ready Forward (RF) and Bank Receipts (BR). Let me try to explain in simple words how he exploited the system.
At any point of time, there would be banks wanting to sell their securities (like bonds/shares) for cash and there would be banks wanting to buy securities by offering cash. He used to act as a middleman between such banks.
Suppose SBI wanted to sell securities and ICICI wanted to buy securities. He would go to SBI and assure them that he will find a buyer, take their securities and ask for 1 week time for this process.
Then, immediately, he wil go to ICICI and tell them that he will find a seller and take their cash and ask for 1 week time. Doing this way, he ended up having both the securities and liquid cash for 1 week (which was illegal but banks did that because he had gained their trust). Since he would deal with multiple banks, he would tell SBI that he will pay on Monday, then go to Canara bank and say he will pay them on tuesday and so on. It was such a sophisticated pipeline process, the next Monday when he was supposed to pay to SBI, he would make a deal with IDBI, get their money and pay it to SBI, hence getting a breathing time of another week and the cycle would continue. Phew!! This was the Ready Forward loophole.
The next loophole he picked was the Bank Receipt. In the above example, you saw how one bank would give securities and another would