Harshad Mehta Scam finding the Loopholes | Scam 1992 RBI:
China’s Businessman Jack Ma is missing.
Anil Ambani has to give back 87000 Crore to the Indian Govt.
The top business Men in the World became Rich using the Share Market.
In 1992 Harshad Mehta was arrested. The Share Points falls by 2000 points. The Loss for India was nearly 1 Lakh Crore Rupees.
Does this money belong to the Rich People?
No. Money was from the Middle-class people. Their investments just disappeared.
Do you know how many COmmitted Suicides after Harshad Mehta arrests?
Why did they commit Suicides?
How did the Share market impact their lives?
Did Reserve Bank of India monitor the Share Market?
What was the Indian govt doing?
We will answer these question in this video.
Beloved Tamil People. Greetings from Tamil Pokkisham.
The First question is,
Why didnt the Reserve Bank of India monitor the Share Market Properly?
There is no way. We have to ask this question. People who direct Web Series and Movies, If they have taken this issue and made a film. Normal People could have understood the economy.
Before we raise questions to the RBI.
We should understand the issues of the govt.
From 1989-1991 India has an economic crisis. There is no way, but to let the Share Market open to the World. The govt allows for Foreign Investments with RBI orders. So this is the structure, RBI, Then comes other banks and Indian Citizens lend money from the banks. An Indian Citizen cannot lend or invest money in the RBI directly.
We have understood this correctly. We get a loan from the State Bank of India. RBI could have given the money to SBI or they could have invested money. We should understand two Terms deeply.
CRR and SLR. We discussed these terms in the Previous video. We have to discuss these terms in this video also. Understanding the Terms, we can learn the Holes of the Share Market which has been Exploited.
CRR(Cash Reserve Ratio), SLR( Statutory Liquidity Ratio). CRR is currency notes. SLR means changing the money into any form will come under SLR. Gold, Diamonds, Govt Security Bonds, all this come under SLR.
You could have heard that the Public Sectors are now in the Share Market. For Ex; It could be BSNL or LIC. So when the Public Sectors engage in Share MArket, The Profits or Losses will be for the Public Sectors to face. When it comes to Public Sectors its People’s Money. The Indian govt should make sure that no fraud has been committed with the People’s Money. But Sometimes the Govt will force the Public Sectors.
For Ex: If there is A WorldWide Recession, and people don’t have money. The Govt will place a request to invest their money in the share market. They will ask to improve the Liquitidy. Money should be in the rotation is the Govt’s main goal. We discussed that India was in Economic Crisis in 1991.
If there is an economic crisis,
Will the Citizens have money?
No. So the People will start getting loans from the banks. If the Banks lend money in huge amounts to people. This will create a big issue. Due to the Economic crisis, Products will be unavailable and Production is affected. So the rotation of money into people should not be very high. This is the calculation of RBI. RBI will say that the CRR ratio will be 15%. The banks will be shocked and will ask questions about the 15% Ratio.
For Ex: If we invest 100rs to SBI. The SBI should pay the RBI rs15. When this kind of money goes to RBI. The Indian govt can take the money and use it for the expenses of the Country. So The Central Govt has this deal with the RBI. So 15rs has been given to RBI and we can only protect 85rs in SBI.
We also discussed SLR. For Ex: If State Bank of India has 100 Crores. People are not getting loans. With the 100 Crores,
Can the bank earn profits?
How does a Bank earn Profits?
When a bank lends money the Interest is the Profit to the bank.
What are the debts of the bank?
If we deposit rs1000 in SBI. Then SBI is in debt to us. So whenever we want we can ask back our money. So the Banks Primary Profit is Interest. So if the 100 Crores remains with SBI. There will be no Profits for the bank. So SBI will give the 100 Crores to RBI of the Indian govt. In Return, they will receive Bonds.
Who gives these Bonds to the RBI?
Our Central govt will give the bonds to the RBI. The Central govt may need money to build a new railway Station. For the Debts, the Central govt will give Bonds. This Bonds will be given by RBI to State Bank of India for the money of Rs100 Crores. RBI will pay the Interest for rs100 Crores to SBI. So the Interest obtained through this method is also a Profit for the Banks.
So the Banks to keep the SLR, 38.5% of Meny or bonds must be kept by every bank. RBI orders the banks to follow the orders from 1989 to 1992.
So if a person deposits rs100. Rs38.5 will be given to the RBI.
What will banks do if they need money?
There is a issue here. The bank may have some Money but they have Debt Bonds. Through the Debt Bonds, they are earning interest from the RBI. The SBI will think about lending the Debt Bonds to other banks and get some money. When this happens the Middlemen will be Brokers.
How did Harshad Mehta get approval as a Broker?
In those days there were Official brokers who were in the Share Market. Brokers who were involved in Money Marketing. Govt approved Brokers were there. Harshad Mehta has taken a Licence to act as a Broker.
SBI tells that using Debt bonds it needs money to Harshad Mehta. So Harshad Mehta will give a receipt to the bank. The Bank will give the security bonds for a certain amount as a debt to the other bank. But this will be given to Harshad Mehta who is the Broker or Middleman between the two banks. So Harshad Mehta will give these bonds to the other banks which has money. The other bank will give the money to Harshad Mehta. This is a normal transaction between banks. Money was received using the Security bonds. The list of these bonds is with the RBI. The Bonds are printed by the Central govt. The RBI gave these bonds to banks. So RBI will maintain a ledger of these bonds. There is a Dept in RBI which handles the ledger. The Dept name is PDO(Public Debt Office). When SBI says to the PDO that it has given the bonds to lent money from the other bank. The Ledger will be changed according to the information given by the SBI.
In those days the banks were not computerised. They have to maintain the records in the notebooks. There was a delay when the Whole Process was completed. RBI has also given orders that CRR and SLR ratio should be 38.5%. So no bank can give a large number of banks to get huge sums of money.
To solve this issue, they Introduce BR(Bank Receipt). Under BR there is a term called Short Selling. We need to understand the BR and Short selling Correctly.
If we understand this Harshad Mehta’s Scam will be revealed to us.
First comes Short Selling. For Ex: A Freind approaches you and has two tickets for a movie and the tickets cost rs100 Each. But you call your friend and say that there are two tickets available but you say the Ticket Price is rs200 Each. So the other friend buys the two tickets for rs400.
Do we have Tickets?
No. But We lied that we had the Tickets. We sell the tickets to rs400 and Take Rs200 as profits for selling the tickets. Now we purchase the ticket from the friend and advise him to give the tickets to the other friend. So Without a Ticket, we sold two Tickets.
]Similair to this Scenario, The banks who don’t have bonds will bring in Receipts. The banks will need rs100 Crores and in return, they will give bonds which they don’t have yet. Based on trust this transaction will take place.
For Ex: If SBI sends a Receipt and wants rs100 Crores. SBI will Recieve the Cheque for rs100 Crores. This cheque will be in the hands of Harshad Mehta. Harshad Mehta will use the Cheque and deposit the money in his bank account. Money then will be used in the Share Market to buy shares.
Can Duplicate Receipts be produced?
Harshad Mehta was helped by many bank managers. With the Help from Higher Officials from banks, fake BR has been taken. To receive the BR there is no need to register it in the Ledger of RBI.
Harshad Mehta goes to Bank Managers and Bribe with a Certain amount as Commission. The Bank Officials give Fake BR. Using the Fake BR he receives the Money. He credits the money into his Bank Account.
How did Harshad Mehta manage to deposit the Cheque into this Bank Account?
This can be done by Privileged Customers or Corporate Customers. If a person or Corporate operates with a particular Bank they become Privileged Customer. To release a Cheque it will take only one day for the Privileged Customer.
For Ex: If A Corporate produces a Cheque for Rs100 Crores. The Process may take upto 2 days. But the interest from the rs100 Crores could be 15% which will be around 8 Lakhs. This will be a loss for the Corporate. To stop the loss from happening The term Privileged customer has been bought in.
RBI had information of the BR and the Privileged Customer. But the Indian govt and RBI didnt care about it. They thought if there is an issue they will shut it down. Like they thought an issue arose in the name of Harshad Mehta.
After the Harshad Mehta Scam, The Laws were Changed. New laws have been implemented. But even after news laws, there have been scams in 2000 and 2020. Some say that Anil Ambani conducted a scam. The Sathyam Computers scam. The Scams have not stopped.
Is Harshad Mehta the Only accused?
Harshad Mehta Scam was discovered by a Journalist from Times OF India. But the same Tomes of India called Harshad Mehta to write an article in 1997.
What could be the reason for this invite?
In 1997 Again Harshad Mehta was arrested. They had 10 Brokers name.
What happened to the 10 Brokers?
Many Politicians have bought shares from the Harshad Mehta Company.
What happened to those shares?
There are still questions which will be discussed in Part3.
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