The 1992 Financial & Securities Scam is arguably India’s Biggest Financial Fiasco. Stock Market was nothing but just a casino for Indian households in the 1980s. The market was dominated by established cartels & there were huge barriers to entry for a newcomer.
One such cartel was led by Manu Manek. Known as the Black Cobra, the BSE was ‘Manu Bhai ni Market’ in the 80s. The meteoric rise of Harshad Mehta gave headaches to such cartels. HM was predominantly a Bull who believed in the positive rationale of the Market.
In the late 80s & early 90s, the market was divided into two parts :
• Gujarati Bull Cartel consisting of Pallav Sheth, Harshad Mehta & his MANY associates.
• Marwadi Bear Cartel consisting of Radhakishan Damani, Rakesh Jhunjhunwala, Ajay Kayan led by Manu Manek. HM was a hero for retail investors who invested in the market for the 1st time, thanks to his charisma.
• The 1990s was a fierce battle between both the cartels. The Bear Cartel was initially clueless about HM’s never-ending funds. The legend goes, Harshad Mehta celebrated his victory over the bears by feeding peanuts to a ‘Bear’ in the Zoo!
A lot has been said about the fiasco, these were the aftermath of the scam :
1) A Committee formed by the RBI & headed by Deputy Governor R Jankiraman estimated the loss to the tune of over ₹4,000 Crore.
Note : The committee only examined the loss incured by banks.
2) Many independent agencies estimated the loss of over ₹1 Lakh Crore which mainly included the investors wealth which was wiped out.
3) The Securities Laws (Amendments) Act was passed in 1995, widening Sebi’s jurisdiction & allowing it to regulate depositories, FIIs, venture capital funds and credit-rating agencies
4) The RBI was given additional powers & regulations on Banks became stringent, a welcome sign. Sebi has also made it mandatory for companies issuing securities to make disclosures beforehand.
There have been multiple scams thereafter, but the 1992 Securities Scam was starting point. Nevertheless, the scam of such magnitude is now difficult all thanks to the stringent Regulations.