HARSHAD MEHTA - How SBI Officials opened the can of worms in April 1992

April 1992 – Opening of the Can of Worms

In April 1992, two weeks before the Harshad Mehta news broke out in The Times of India by the reporter Sucheta Dalal through a tip, a couple of SBI officials spotted discrepancies in SBI’s books. Lesser did they know, they were opening the can of worms of one of the biggest scams in the Indian Financial sector – The HARSHAD MEHTA SCAM. Series of events, internal investigations unfolded in such a way that it eventually reached the TOI office after two weeks.

Considering the huge sum of money being handled under banks’ books, discrepancies of Rs. 20-30 crores due to accounting errors or delays in record-keeping were common in those days and would normally be rectified within a few days. SBI officials earlier thought of this as a similar case but with further scrutiny, they realized this amount was much larger. How much? A whopping Rs.500 crores, a large sum even for banks in those days. However, they were wrong about the size of this scam. It was just the tip of the iceberg they had hit and it wasn’t the only iceberg! The Janakiraman Committee, set to probe into the matter, later marked the scam size at around Rs.4300 crore. Inflation-adjusted, this equals 6 times that amount today. This still did not include the indirect effects of this scam like the wealth wiped off the stock market in its aftermath and its other ‘side-effects’.

Who was Harshad Mehta?

Born on July 29, 1954 in Gujarat, Harshad Shantilal Mehta, grew up in Mumbai. After completing his B.Com and doing various jobs, Harshad became a financial broker in Mumbai. By 1984 he performed well and also established his own brokerage firm named GrowMore Research and Asset Management.

His personality can be perfectly described with one incident: Harshad Mehta once fed peanuts to bears at a zoo in Mumbai to mark his victory over the bear-cartel in the stock market (‘bear cartel’, in the stock market term, refers to a group of people who slog to bring down the price of a specific stock). Due to such bold nature and sumptuous lifestyle involving expensive cars and real-estates, he was being called ‘The Big Bull’.

To understand the scam we first need to understand the base it was set on: Banking Sector and the Stock Market.

Bank Receipt – The Unsecured Government Security

Brokers and Bonds

During the early 90s, two of the major financial markets were those of Government Securities and the Stock market. Government Securities included Bonds issued by the government to raise capital in return for some interest. Banks were allowed to trade only in government securities and not in the stock market. Not just that, it was mandatory for banks to maintain a specific part of their investments into government securities.

Banks had to keep a percentage of their deposits with RBI on a fortnightly basis called as Cash Reserve Ratio (CRR). Also, banks were required to invest their deposits in securities called Statutory Liquidity Ratio (SLR). It was set at more than 35% in those days. Major banks maintained this regularly but some banks were not able to do so. Consequently, this led to the inter-bank market of government securities wherein the banks running short of government bonds at the time of deadline would buy for short-term from banks having those in surplus and willing to sell for additional interest.

Bank Receipts (BRs)

In these transactions, the bank which sold Securities would not transfer the actual securities to buyers. Instead, they issued ‘Bank Receipts’ (BRs) for ease of transactions and flexibility that BRs provided. A BR thus meant that the bank which issued BR ‘owes’ Government Securities to the other bank and has received money for the same from that bank.

Banks performed these transactions through brokers. Many such securities from multiple banks were traded simultaneously and there were limited brokers in this market. One of them was Harshad Mehta. Harshad having the knowledge of banks from both sides would get BRs from one bank, get money from another bank (through Ready Forward Deals but directly into his account!) in need of those securities, and pass on the BRs to them.

But where is the Scam? This all still looks fine!

Apart from being Market Maker in these transactions, Harshad Mehta started using fake Bank Receipts in coordination with officials from some banks – Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB). While his earlier deeds of juggling money and BRs from one bank to another were in the ‘grey’ zone of legality, the issuance of fake BRs was a serious crime. He would get fake BRs on the name of a bank and receive money for it from another. And there were not just two banks, there were many! Harshad juggled these fake BRs through banks, got money directly into his account, and diverted that money into the Stock Market. He would then book profits and return money back, keeping huge profits to himself.

This pumping of money raised the prices of many stocks and Sensex to irrationally high levels. Harshad being a ‘knight in the shining armor’ for the media in those days, supported this bull run with his ‘ Replacement Cost Theory’ which stated to value a company price not based on its current performance but what it would replace it if it did not exist. Investors thus frenzied over these stocks even more due to which Sensex rose from around 2000 in January 1992 to above 4000 in March 1992! A phenomenal performance considering the short span of 3-4 months.

Exposing Harshad Mehta

In April 1992, during internal audits, officials of SBI found certain discrepancies in their accounts. After a discussion with RBI, other banks, officials, SBI called Harshad Mehta for inquiry. This news reached journalist Sucheta Dalal of the Times of India. Sucheta, with further investigations, published a detailed article in TOI on 23 April 1992. Several other news media later published various investigative columns related to this scam. The Janakiraman Committee was then established to probe into the matter.


The Stock Market crashed! Sensex fell back to around 2500 levels. New Investors’ wealth wiped out largely.

Banks too set up special internal investigations. Later they realized, they were having exposure to fake BRs, some in the range of hundreds of crores. A bank official committed suicide, some were arrested, some resigned!

The then Finance Minister Mr. Manmohan Singh, who earlier denied the scale of this scam in parliament, later had to submit his resignation. Though it was rejected by PM Narsimha Rao. Chidambaram, among others, too had to resign.

In April 2017, 25 years after the Harshad Mehta scam, a special CBI court in Mumbai convicted four more former bank officials and sentenced them to 3 years of imprisonment.

What happened to Harshad Mehta?

Harshad Mehta’s questioning and investigations went on for months. In 1992, more than 72 criminal cases and hundreds of civil suits were filed against Harshad Mehta and his family. Noted advocate Ram Jethmalani represented Harshad. Harshad was finally convicted by the court in 1999 for the scam and was sentenced to 5 years of rigorous imprisonment.
While in custody in Thane Prison, Harshad died of Cardiac arrest on 31st December 2001.

In Conclusion

Though Harshad was inarguably the mastermind behind the 1992 scam, many experts in the field believe there is more to it other than Harshad. Harshad’s advocate Ram Jethmalani even argued to not give this scam Harshad’s face! This scam would not be possible without the involvement of officials, other brokers, and politicians. The greed of not just gullible investors, but also that of banks for higher returns act as a catalyst for such scams. Also, the lack of implementation of financial rules and lack of scrutiny by supervising bodies come under the scanner after such incidents.


many people still do it today but not like this greedy bull

1 Like

I watched the show ‘Scam 1992’ on Sony Liv. Haven’t read the book, don’t have much knowledge about the BR etc, but Harshad using bank’s money lying idle in his account to trade was playing in the grey area of legalities, unless you default to pay back. Don’t know why the system was so at the first place where banks needed a broker in between for security deficit trade. Fake BR is actually where the greed took over him and he crossed the line. But the entire system was curropt by then. After watching the show, I actually searched for his interview on youtube where he was still confident that he can resolve the conflicts between the banks on books of accounts. He also mentions that after a few crores, he doesn’t need more money. Something to hear from him was quite surprising and profound.
Some other interesting things to note in the web series is Rakesh Jhunjhunwala who is known as big bull today was a pussy cat in front of Harshad back then. RJ has been portrayed as a ghutkha chewing, abusing, idiot and a womaniser. If you watch RJ’s interviews you would realise that though he has money, a lot of maybe, but he has booked long term capital loss in terms of class (which money can’t buy) and health (has issues breathing and talking due to obesity). Moreover RJ has made money only for himself. Damani, his mentor went for DMart at least adding to India’s GDP.


Very true, money definitely can’t buy class.

1 Like

Well Said

bear cartel used same method , Mehta did opposite and made investors money also , thats why made bali ka bakra

1 Like

any information about Manu Mundra ,what happened to him @Fintrovert.com @rupeshmandal

He is mentioned in Sucheta Dalal’s book as ‘Manu MANEK’. It is said in the book that Manu Manek was the kingpin in BSE during the 1980s. He carried out a parallel Stock market with his own deals controlling that market. Such was his power even in BSE, Trade unions, etc.
Incidents from the series are mentioned in the book… for e.g. Manu defaming Harshad during 4-days holidays that Harshad could not pay his margin commitments etc. It was all Manu Manek.
Google about Manu Manek may be you will get to know what happened to him later. I dont know about that.