English Essay/Paragraph/Speech on “The Stock Scam” for Kids and Students for Class 8, 9, 10, Class 12 and Graduation Examination

The Stock Scam

The multi-crore security scam shook Indian stock markets as a result of which they came to a screeching halt and the ‘bull’ in the ‘China shop’ was the ‘Big Bull’ Harshad Mehta, a Bombay Stock Broker. The enormity of dimension and intensity of the whole episode baffles imagination. The scam is perhaps unrivaled by any scam – worth the name — in the past. The technique employed to obtain money from the banks – to be invested in stocks – is also unique. The securities scam was a massive fraud on the people.

Banks’ involvement in various frauds is general knowledge but bank frauds involving brokers were unknown. Bank frauds – there have been many in the past – have been known to have involved businessmen having “good” links with both banks as well as with politicians. The present scam is essentially of money market. In this a nexus was built between the stock and the money markets to further the gains of few people and it was done by managing to involve banks, money market and the stock market.

Harshad Mehta has been a stock broker with a keen eye on judging scrips. But his ‘success’ in real sense began after he had plunged deep and head long in the money market availing himself of the nearness to the senior banking people and the corresponding eagerness to make fast money who, in their eagerness ignored the RBI’s guidelines thereby enabling Harshad Mehta’s emerging as a big player in the every day money market.

The total amount of money from banks and other financial institutions as revealed through the Janakiraman Committee probing irregularities in securities transactions, in its fourth report, is to the tune of Rs. 4,024.45 crore. In its 176 page findings, released six months after the third report, the Committee, appointed in the wake of the multi-crore rupee securities scam, unearthed the deeper role of two foreign banks – Standard Chartered and ANZ Grindlays and four Indian banks and financial companies, turning the spotlight on broker Hiten P. Dalal and to a lesser extent on Harshad S. Mehta. The report exposed the link between banks and financial companies and the brokers concerning their transactions in blatant violation of Reserve Bank guidelines on Portfolio Management Schemes helping the major players to funnel the funds to the stock market.

Foreign banks apart, the findings highlight the role played by Canbank Financial Services Ltd., a Canara Bank subsidiary, Andhra Bank Financial Services Ltd., State Bank of Patiala and Vijaya Bank. The revised estimate, the report said, did not take into account the securities held by Standard Chartered Bank and Andhra Bank Financial Services Limited, the realizable value of which was yet to be determined. The exposure of Canfina in the securities scam is being computed at Rs. 666.73 crore.

A serious note has been taken by the Government and the RBI of this wholesale violation of RBI guidelines, the failure of internal control systems as well as of flouting of banking norms regarding  the account payee cheques. The process of fixing the responsibilities for lapses, collection and fraud is under way. The RBI investigation committee has drawn out a list of devices adopted for diversion of funds from the banking system to the individual accounts of certain brokers which prima facie constitute the evidence of fraudulent misappropriation from management operations. The CBI enquiry was also in progress to determine the criminal liabilities and government will take all steps to recover the dues of the banking system from those who have misused it (the system) and to punish the guilty.