Harshad Mehta's 1992 Securities Scam - Simplified

You may already know his story from the web series Scam 1992 or Abhishek Bachchan’s movie The Big Bull, but here is the explanation of the entire scam that took place in a simplified manner.

· 4 min read
Harshad Mehta's 1992 Securities Scam - Simplified
header image credits : indiacontent.in

You may know him as the main character of the super-hit web series Scam 1992, which is based on his role in the securities scam in 1992. However, for many people in the older generation, Harshad Mehta’s name is synonymous with the stock market itself, was a business icon of that generation along with the likes of Dhirubhai Ambani, and was the ultimate rags-to-riches story.

You may already know his story from the web series Scam 1992 or Abhishek Bachchan’s movie The Big Bull, but here is the explanation of the entire scam that took place in a simplified manner, one that eclipses the value of Vijay Mallya’s and Nirav Modi’s scams too.

Harshad Mehta - the money market broker

image credits : India Today

Back in those days, RBI had a mandate that all banks, strong or weak, were required to have a certain minimum amount of funds allocated for government bonds by the end of each week, else they would be penalized by RBI. The strong banks were those who had much more government bonds than mandated by the RBI and the weak banks did not have the sufficient amount as mandated.

To sort this, strong banks would usually lend these additional bonds to weaker banks in return for some interest at the bond prices. However, these banks don’t make these transactions within themselves, they would do it using a broker. And one of them was Harshad Mehta.

A broker like Harshad would approach the weak banks and offer them the government bonds on behalf of the cheque stating the price and the interest. The broker would then approach the strong banks and offer the principle and interest on behalf of the government bonds to be offered.

In the end, the weak banks get to hold the bonds and the strong banks get the interest on those bonds, while the broker makes a small transaction fee. So how did Harshad Mehta become a zillionaire brokering such transactions?

Loophole in the banking system

Remember that Harshad Mehta was initially in the stock market business, and he found a massive loophole in the banking system. The cheque that weak banks wrote were in the brokers’ (like Harshad Mehta) name and the amount went to their personal bank account.

Harshad realised that he did not have to immediately send this money to the strong banks, and this large amount was sitting simply in his bank account until he had to send it to the strong banks.

So he used this massive capital to drive up share prices in the stock market of select companies like ACC. Once he had to return the money to the strong banks, he would liquidate his position in the market and return the original amount, keeping the profit for himself.

Since he was the broker for many banks, he had enough capital to continuously rotate this amount from weak banks so that he would never liquidate enough shares for the stock prices to crash.

In this market, two banks dealing in securities used to have a high transaction cost so it was a widely accepted procedure to transfer the amount to the broker’s bank account directly, from which the broker can send the amount from one bank to the other.

So he used that amount to raise up share prices in the stock market, then liquidate the shares and give the original amount back to the receiving bank, while keeping the profit made from the stock market.

This worked brilliantly for Harshad. One of his favorite stocks, ACC, jumped from ₹200 to ₹9,000 in a very short span of time.

The real corruption

Until this point, the market was overvalued but there was nothing legally sketchy yet. The real corruption in the 1992 Securities Scam started taking place when Harshad Mehta conspired with many banks, including Bank of Karad and Metropolitan Cooperative Bank to issue fake bank receipts (BRs) that did not have any underlying bonds associated with it.

Adding to this, Harshad continued to have connections with big politicians and executives at RBI at that time, which was helping him secure funding from even divisions of RBI including the National Housing Bank (NHB).

Once exposed by an investigative journalist in April 1992, the market crashed drastically and Harshad could not transact the money he was supposed to give to the banks lending the government bonds. All this got him into big trouble. Once he got exposed, a lot of top banks realized they were holding BRs having no value, swindled of ₹40 billion.

Over time, revelations have revealed that Citibank, brokers like Pallav Sheth and Ajay Kayan, industrialists like Aditya Birla, Hemendra Kothari, a number of high-level politicians, and the RBI Governor S.Venkitaramanan (in image) all had played a role in allowing or facilitating Mehta's systematic rigging of the share market, and Mehta was just a big fish in the whole scandal, not the whole pond.

image credits: Indian Express


A huge majority of the banks that were robbed never got their money back. This resulted in a massive bear run for banking stocks for the rest of the 90s.

The S&P BSE Sensex, which rallied 274% from 1,194 points to 4,467 points from April 1991 to April 1992, fell right back into the 2000s range and did not reach it’s all-time highs until nearly a decade later.

image credits : assetplus

Harshad Mehta sadly passed away on New Years Eve night in 2001. His brother and partner-in-crime Ashwin Mehta and the rest of his family were fighting to clear their name until Ashwin was finally acquitted by a special court in 2018.

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