The 1992 Indian stock market scam was a market manipulation carried out by Harshad Mehta and other bankers and politicians on the Bombay Stock Exchange. The scam caused significant disruption to the stock market of India, with over one billion USD defrauded. Techniques involved having corrupt officials signing fake cheques, market loopholes, and lies to drive the prices of stocks up to 40 times their original price.
About 1992 Indian stock market scam in brief
The 1992 Indian stock market scam was a market manipulation carried out by Harshad Mehta and other bankers and politicians on the Bombay Stock Exchange. The scam caused significant disruption to the stock market of India, with over one billion USD defrauded. Techniques involved having corrupt officials signing fake cheques, market loopholes, and lies to drive the prices of stocks up to 40 times their original price. Stock traders making good returns as a result of the scam were able to fraudulently obtain unsecured loans from banks. The 1992 scam was the biggest money market scam ever committed in India. It was a systematic stock fraud using bank receipts and stamp paper which caused the Indian Stock market to crash. It exposed the inherent loopholes of the Indian financial systems and resulted in a completely reformed system of stock transactions and an introduction of online security systems. The net value of the stocks was higher than the health budget and education budget of India. The index fell from 4500 to 2500 representing a loss of Rs. 1000 billion in market capitalisation. This rapid fall was the largest the stockMarket had ever seen. The impact of the scams had many consequences, which included the loss of money to lakhs of families and the immediate crash of the stock Market. It also raised many questions involving bank officials responsible for being in collusion with mehta.
An interview with Montek Singh Ahluwalia revealed that many top bank officials were involved. MehtA squeezed capital out of the banking system to address this requirement of banks and pumped this money into the share market. He promised the banks higher rates of interest, while asking them to transfer the money into his personal account, under the guise of buying securities for them from other banks. He used this money temporarily in his account to buy shares, hike up demand of certain shares, sell them off, pass on a part of the proceeds to the bank and keep the rest for himself. This resulted in stocks like ACC, which was trading in 1991 for ₹200share, catapult to nearly ⁹9,000 in just 3 months. Since he had book profits in the end, the day he sold the stocks that he owned in these companies was the day when the markets crashed. When one bank wants to sell securities, he approaches another bank and tries to sell the securities, and vice versa for buying. Since Meht a was very renowned, he got his cheques in his name instead of using his name. Once these fake BRs were issued, the banks and the banks in turn gave money to MeHTa, plainly assuming they were lending against government securities. That was an increase of 4,400% which was tied into the overheating stock market.
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This page is based on the article 1992 Indian stock market scam published in Wikipedia (as of Jan. 04, 2021) and was automatically summarized using artificial intelligence.
