8Harshad Mehta Scam worth ₹3500 cr
Harshad Mehta was one of the most trusted stock breakers of his time. Through his experience in the stock market, he was cognizant of all the loopholes in the Indian banking system and ensured enormous profits for himself through illegal dealings. A few finance experts believe that he did not even commit fraud but merely exploited the loopholes in the system! Harshad Mehta was the kingpin of a handful of stockbrokers who managed to siphon off 3500 crore rupees from unassuming banks on the pretext of striking ready forward deals (15-day loan from one bank to another) against government securities (bonds). In 1992, the government had set up a rule within which banks had to show their balance sheet on each Friday with a certain minimum sum of money invested in the government bonds and the average amount of money invested per day during the 7 day period to be over the fixed minimum amount.
Now, the smaller banks would sell some government bonds to invest elsewhere during the week. But come Friday, they need to pile up a number of bonds that they have bought to bring their daily average over the minimum amount as stipulated by the government. So, the smaller bank needs to buy these bonds from the larger banks who have that average maintained, and then some more. These banks then approached Harshad Mehta and his associates as he was a trusted broker and all major banks knew him well. But Harshad Mehta opined that he did not know where he would buy the bond from and therefore asked the smaller bank to make a cheque in his own name instead of the major bank’s name.