learning’s from scams in india
TRANSCRIPT
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Learnings from scams in
India
By
Neeraj Kumar
2008C6PS609G
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Introduction
Just as it is impossible not to taste the honey or poison that one may findat the tip of one's tongue, so it is impossible for one dealing with
government funds not to taste, at least a little bit, of the king's wealth.
Arthashastra Kautilya, 4 B.C.
This study try to understands what are the factors thatlead to a scam, what were the remedial steps taken and
what should be done to prevent it in future ,recovering
the money .
Taking Harshad Mehta Securities ScamOne of thebiggest financial scams of Indian history.
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Significance of study
India is playing an ever larger role in the worldeconomy, the issue of corruption, in both the private
and public sectors in India is coming into sharper focus.
Studies suggest corruption hampering growth of India
to a significant extent. Indias GDP could have been 9%or above had India had a check over corruption and
scams from the start.
Some of the scams are a result of loopholes of the
Indian law system or lackluster implementation of thesame.
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Objectives
To analyze a big scam in India.
Analyze factors which led to the scam specifically.
Impact of the scam and other scams in general to the
economy.
Effectiveness of the steps taken as remedial measures.
Steps which should be taken to prevent such in future.
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Harshad Mehta Securities
ScamKnown to be Big bull of trading floor at
a time.
Engineered the rise of BSE stock
exchange in 1992.
The amount of scam was around Rs.5000 crores.
The Securities Scam referred to
diversion of funds to the tune
of overRs.3,500crores from the bankingsystem to various stock brokers in a series
of transactions(primarily in Government
securities)during the period April 1991 to
May 1992
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Factors leading to the scam
Loophole in the government banking policy.
Unethical things were also done.
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Banking policy
Borrowing and lending Bank.
Borrower Bank issues Bank receipts of govt. securitiesand give it to Lender bank to get it back at a higher price
after sometime when it repays the lender bank.
Borrower
bankLender
bank
Issue
BRBrok
er
Issue
BR
Funds Funds
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Contd.
Borrower bank were Bank of Karad and NCO co-operative bank.
Lender banks were SBI,SCB , Vijaya Bank etc.
Once these fake BRs were issued, they were passed
onto other banks and the banks in turn gave money toHarshad Mehta, assuming that they were lending
against government securities when this was not really
the case.
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Unethical things Done
Imaginary companies created
Bought the shares of own company by himself causing
Sensex up
Purchased Huge amount of shares of a targeted
company like ACC .
Created fake BRs, or BRs not backed by any government
securities
Illegally issue of BR by small bank
Without verification, banks like VijayaBank issued the
cheque.
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Government Measures
The response of any government to a scam of this kindwould have three main facets
Discover and punish the guilty
Recover the money
Reform the system
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Cont.
Harshad metha group were put under the trial and theirproperties were seized.
SEBI was upgraded to a fully autonomous body.
It had functions like
Investor protection
Orderly development of capital market.
Securing interests of investors.
Undertake periodic audits.
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Recovery of money
Is a very critical issues in these scams
The Special Court (Trial of Offences Relating to
Transaction in Securities) was set up by an Act of
Parliament in 1992 to deal with the extraordinary
situation arising out of the securities scam. The Custodian is the principal administrative officer
under the Act for the attachment, management and
liquidation of the assets of notified persons(convicts)
who functions under a system of concurrent judicialreview by a special court comprising sitting high court
judges at Mumbai.
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Contd.
So far, over Rs.4,000 crore, including the latest disbursalhave been paid on behalf of the HMG alone. Of this, the
I-T department has received Rs.3,200 crore and the
balance Rs.800 crore has gone to the SBI.
But Standard Chartered Bank, which had made a claimof Rs.500 crore is yet to get a penny as it was one of the
late claimants.
Recovering of all the money is a herculean task.
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Conclude
There was a total lack of transparency in the moneymarket.
Irregularities of all kind were so common that no
suspicion aroused even by highly irregular transactions.
This is the ideal situation for scam to germinate andgrow into alarming proportions.
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Statisitics and analysis
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Contd.
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Analysis
Corruption Perception Index(CPI)-The lower it is thehigher the corruption level is. Thusas we see India has ahigh level of corruption more than China can be
attributed to democracy here.
A large number of people and government officialsbelieve that Indias growth rate is hampered by
Corruption to a significant extent.
Real estate and construction was the hot bed for
corruption for reasons like no Land regulation in states,Land mafias and politics.
Due to 2G scam telecommunication sector also looked
vulnerable.
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Conclusion and policy
analysis Instead of waiting for any scam to happen then act
Govt. should keep on regulating policies and laws to
prevent any scam in the start itself.
Speedy trials of the guilty to punish the wrong doers as
fast as possible. It restores the faith of people in thelegal system as well.
Setting up of special courts to speed up the trial. But
they should be independent and fair in these cases
there is a lot of pressure as very high profile people areinvolved.
Proper regulation on highly vulnerable sectors like
construction,telecommunication.