Nepali capital market and banking system can learn from how Harshad Mehta pulled off one of the most audacious scams in the history of the Indian stock market.
Harshad Mehta first started working as a dispatch clerk in the New India Assurance Company. Over the years, he got interested in the stock markets and along with brother Ashwin started investing heavily in the stock market.
As they learnt the ropes of the trade, they went from boom to bust a couple of times and survived. Mehta gradually rose to become a stock broker on the Bombay Stock Exchange, who did very well for himself. At his peak, he lived almost like a movie star in a 15,000-sq-feet house, which had a swimming pool as well as a golf patch. He also had a taste for flashy cars, which ultimately led to his downfall.
The year was 1990. Years had gone by and the driving ambitions of a young man in the faceless crowd had been realised. Harshad Mehta was making waves in the stock market. He had been buying shares heavily since the beginning of 1990. The shares which attracted attention were those of Associated Cement Company (ACC). The price of ACC was bid up to Rs 10,000. For those who asked, Mehta had the replacement cost theory as an explanation.
Through the second half of 1991, Mehta was the darling of the business media and earned the sobriquet of the 'Big Bull', who was said to have started the bull run. But, where was Mehta getting his endless supply of money from? Nobody had a clue.
On April 23, 1992, journalist Sucheta Dalal in a column in The Times of India, exposed the dubious ways of Harshad Metha. The broker was dipping illegally into the banking system to finance his buying.
The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another.
Crudely put, the bank lends against government securities just as a pawnbroker lends against jewellery. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price.
It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel money from the banking system.
A typical ready forward deal involved two banks brought together by a broker in lieu of a commission. The broker handles neither the cash nor the securities, though that wasn't the case in the lead-up
to the scam. In this settlement process, deliveries of securities and payments were made through the broker. That is, the seller handed over the securities to the broker, who passed them to the buyer, while the buyer gave the cheque to the broker, who then made the payment to the seller. In the process, the buyer and the seller might not even know whom they had traded with, either being know only to the broker.
This the brokers could manage primarily because by now they had become market makers and had started trading on their account. To keep up a semblance of legality, they pretended to be undertaking the transactions on behalf of a bank.
Another instrument used in a big way was the bank receipt (BR). In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower or the seller of securities, gave the
buyer of the securities a BR, that 'confirms the sale of securities. It acts as a receipt for the money received by the selling bank. Hence the name — bank receipt. It promises to deliver the securities to the
buyer. It also states that in the mean time, the seller holds the securities in trust of the buyer.
Having figured this out, Metha needed banks, which could issue fake BRs, or BRs not backed by any government securities. Two small and little known banks — the Bank of Karad and the Metorpolitan Co-operative Bank — came in handy for this purpose. These banks were willing to issue BRs as and when required, for a fee. Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, obviously assuming that they were lending against government securities when this was not really the case. This money was used to drive up the prices of stocks in the stock market. When time came to return the money, the shares were sold for a profit and the BR was retired. The money due to the bank was returned.
The game went on as long as the stock prices kept going up and no one had a clue about Mehta's modus operandi. Once the scam was exposed, though, a lot of banks were left holding BRs that did not have any value — the banking system had been swindled of a whopping Rs 4,000 crore Indian currency.
Interestingly however, by the time he died in a jail in December 2001, Mehta had been convicted in only one of the many cases filed against him.
(Source — The Great Indian Scam: Story of the missing Rs 4,000 crore by Samir K Barua and Jayanth R Varma)
Saturday, January 12, 2008
Friday, January 11, 2008
Nepal-Korea ink service commitment pact
Nepal and South Korea today signed service commitment agreement — the final agreement among the three that Nepal has signed with South Korea to send aspirant job-seekers to Korea under EPS programme.
South Korean Human Resource Development Centre (HRDC) chief Kim-Young-Dal and Keshar Bahadur Baniya, director general of EPS division under the Ministry of Labour and Transport Management (MoLTM) signed the agreement on behalf of their respective governments.
According to the agreement, South Korean government will take Korean Language Proficiency Test (KLPT) and Nepal government will help conduct the exam.
However, the government is planning to give management contract to hold KLPT exam to TU. The exam will be conducted on any Saturday between the last week of February and first week of March. The exam fee will be $30 (around Rs 2000).
Though the exam centres will be at different parts of the country also — to provide easy access to job aspirants from across the country — the test would be conducted by the Koreans and the exam papers will be sent to Seoul. The result will be published from Seoul.
However, one can learn Korean language in the government registered language institutes or self and sit for the KLPT exam. The government has called language institutes to register with the EPS section of ministry to impart the language training. Among the 215 registered institutes, only 171 institutes were qualified. Few language institutes have also not met criteria.
To pass the KLPT, one has to score 120 marks in two subjects — 60 per cent in aggregate in each subjects. The successful applicant will then be enrolled and forwarded to the job seekers' roster in Korea. Upon examining the roster details, HRDC will forward the list to the companies seeking foreign migrant workers.
The employers will select workers from among the recommended ones. Once the workers are selected, the employers will sign labour contract with them and apply for certificate for confirmation of visa issuance.
After that an applicant has to pass through pre-departure process like medical check-up, orientation and training before job. All the cost of a worker will not exceed Rs 1,25,000.
Nepal and South Korea has signed an agreement to send Nepali workers to South Korea in July and in December 11, they have signed implementation agreement.
South Korean Human Resource Development Centre (HRDC) chief Kim-Young-Dal and Keshar Bahadur Baniya, director general of EPS division under the Ministry of Labour and Transport Management (MoLTM) signed the agreement on behalf of their respective governments.
According to the agreement, South Korean government will take Korean Language Proficiency Test (KLPT) and Nepal government will help conduct the exam.
However, the government is planning to give management contract to hold KLPT exam to TU. The exam will be conducted on any Saturday between the last week of February and first week of March. The exam fee will be $30 (around Rs 2000).
Though the exam centres will be at different parts of the country also — to provide easy access to job aspirants from across the country — the test would be conducted by the Koreans and the exam papers will be sent to Seoul. The result will be published from Seoul.
However, one can learn Korean language in the government registered language institutes or self and sit for the KLPT exam. The government has called language institutes to register with the EPS section of ministry to impart the language training. Among the 215 registered institutes, only 171 institutes were qualified. Few language institutes have also not met criteria.
To pass the KLPT, one has to score 120 marks in two subjects — 60 per cent in aggregate in each subjects. The successful applicant will then be enrolled and forwarded to the job seekers' roster in Korea. Upon examining the roster details, HRDC will forward the list to the companies seeking foreign migrant workers.
The employers will select workers from among the recommended ones. Once the workers are selected, the employers will sign labour contract with them and apply for certificate for confirmation of visa issuance.
After that an applicant has to pass through pre-departure process like medical check-up, orientation and training before job. All the cost of a worker will not exceed Rs 1,25,000.
Nepal and South Korea has signed an agreement to send Nepali workers to South Korea in July and in December 11, they have signed implementation agreement.
Thursday, January 10, 2008
Nepal to host global microfinance meet
Nepal is hosting a world summit on Microfinance on February 14-16 as the country continues its long battle to expand and consolidate the service delivery institutions.
The main output of the summit will be the joint declaration and an action plan for building a strong and inclusive microfinance sector. The three-day long conference — the first of its kind in Nepal — has a slogan 'Reaching the Poorest of the Poor for Sustainable Income'.
"Microfinance is an effective tool for poverty alleviation," said Dr Harihar Dev Pant, chairman of the National Steering Committee, adding that the summit is intended to facilitate a broader dialogue between the stakeholders and create a common understanding among them, including policymakers and politicians to make micro finance a priority issue in the national development strategy.
The participants will discuss their experiences and jointly decide on the future course of microfinance in Nepal that has over 3,600 microfinance institutions providing services to roughly one million families.
According to Dr Pant, Nepal has an ambitious target of reaching out to poorest of the poor that is bottom 20 per cent.
Some 300 participants — policy makers, practitioners, rural development, micro-finance development and commercial banks and cooperatives and representatives, NGOs and INGOs — from around the world are taking part in the summit.
The first Micro finance summit was held in Washington in 1997.
The main output of the summit will be the joint declaration and an action plan for building a strong and inclusive microfinance sector. The three-day long conference — the first of its kind in Nepal — has a slogan 'Reaching the Poorest of the Poor for Sustainable Income'.
"Microfinance is an effective tool for poverty alleviation," said Dr Harihar Dev Pant, chairman of the National Steering Committee, adding that the summit is intended to facilitate a broader dialogue between the stakeholders and create a common understanding among them, including policymakers and politicians to make micro finance a priority issue in the national development strategy.
The participants will discuss their experiences and jointly decide on the future course of microfinance in Nepal that has over 3,600 microfinance institutions providing services to roughly one million families.
According to Dr Pant, Nepal has an ambitious target of reaching out to poorest of the poor that is bottom 20 per cent.
Some 300 participants — policy makers, practitioners, rural development, micro-finance development and commercial banks and cooperatives and representatives, NGOs and INGOs — from around the world are taking part in the summit.
The first Micro finance summit was held in Washington in 1997.
Wednesday, January 9, 2008
Cheapest car to be launched
India's giant Tata Group is tomorrow unveiling the world's cheapest car, which analysts say could revolutionise prices worldwide.
Ratan Tata, the reclusive tycoon who heads the tea-to-steel conglomerate, will kick off an auto show here with the unveiling of the long-awaited 'People's Car', which will carry a sticker price of Rs 100,000 Indian Currency (IC) or $2,500.
The cheap car is a pet project of the Cornell-trained architect Ratan Tata, who helped design it, and is aimed at getting Indian families off their motorbikes and into cars. Ratan Tata has spearheaded the growth strategy of the company known for its philanthropic values. "I hope to make a contribution to making life safer for them the masses," he said.
Small cars are expected to dominate the biennial auto show, which has become one of Asia's largest and is expected to draw 1.5 million visitors, up from one million in 2006, organisers say.
"India's auto industry has found a new confidence — the show can be seen as the automotive industry coming of age," said Ravi Kant, president of the Society of Indian Automobiles (Siam).
Domestic and international carmakers have been in a race to corner India's small car market, which accounts for over two-thirds of domestic sales in the country of 1.1 billion people.
Small car sales are expected to nearly double to around two million units by 2010 as India's population becomes more affluent and trades up from motorcycles to cars.
The eight-day show features automakers from around the world from Honda, Ford, Hyundai and Volkswagen to luxury carmakers like BMW and Daimler, which are reaching out to India's new free-spending wealthy in an economy growing by nine per cent.
India's automotive industry, which produces 1.5 million vehicles annually, is worth $34 billion a year and contributes five per cent of the country's gross domestic product (GDP).
An Indian government mission plan aims for automotive sales to more than quadruple to $145 billion by 2016, and for indirect and direct auto sector employment to grow to 25 million from 13 million today.
The new car to be unveiled by the Tatas could 'revolutionise car costs downward,' said leading Indian car analyst Murad Ali Baig. "This car is bound to be followed by other low-cost ones. A lot of people just want a car that takes them from home to the market, they don't want something fancy or they want something small as a second car," he said.
Indian motorcycle maker Bajaj and France's Renault are looking at making a $3,000 car for the Indian market that would get 34-km per litre of fuel. Tata has said it is targeting its car at Indian and other emerging markets. The car would cost about half the price of its nearest rival in the Indian market made by Japanese-owned Maruti Suzuki that sells for $4,800.
A Tata Motors board member said the car would get 25-km per litre of fuel. Tata has said it believes it could eventually sell one million 'People's Cars' annually.
Tata, which has been on an aggressive overseas expansion drive, is also expected to win its reported two-billion-dollar bid for the British Land Rover and Jaguar brands in January — which would put it in the unusual position of making two prestige cars as well as the world's lowest-cost automobile.
Environmentalists see clouds on the horizon if the cheap car is a winner, fearing it will further congest India's clogged roads and add to choking pollution. But Tata says the car will create no more pollution than a motorbike.
India's car market is a huge draw because car penetration is just seven per 1,000 people compared to 550 per 1,000 in such countries as Germany or 476 in France, said Dilip Chenoy, Siam director general.
Ratan Tata, the reclusive tycoon who heads the tea-to-steel conglomerate, will kick off an auto show here with the unveiling of the long-awaited 'People's Car', which will carry a sticker price of Rs 100,000 Indian Currency (IC) or $2,500.
The cheap car is a pet project of the Cornell-trained architect Ratan Tata, who helped design it, and is aimed at getting Indian families off their motorbikes and into cars. Ratan Tata has spearheaded the growth strategy of the company known for its philanthropic values. "I hope to make a contribution to making life safer for them the masses," he said.
Small cars are expected to dominate the biennial auto show, which has become one of Asia's largest and is expected to draw 1.5 million visitors, up from one million in 2006, organisers say.
"India's auto industry has found a new confidence — the show can be seen as the automotive industry coming of age," said Ravi Kant, president of the Society of Indian Automobiles (Siam).
Domestic and international carmakers have been in a race to corner India's small car market, which accounts for over two-thirds of domestic sales in the country of 1.1 billion people.
Small car sales are expected to nearly double to around two million units by 2010 as India's population becomes more affluent and trades up from motorcycles to cars.
The eight-day show features automakers from around the world from Honda, Ford, Hyundai and Volkswagen to luxury carmakers like BMW and Daimler, which are reaching out to India's new free-spending wealthy in an economy growing by nine per cent.
India's automotive industry, which produces 1.5 million vehicles annually, is worth $34 billion a year and contributes five per cent of the country's gross domestic product (GDP).
An Indian government mission plan aims for automotive sales to more than quadruple to $145 billion by 2016, and for indirect and direct auto sector employment to grow to 25 million from 13 million today.
The new car to be unveiled by the Tatas could 'revolutionise car costs downward,' said leading Indian car analyst Murad Ali Baig. "This car is bound to be followed by other low-cost ones. A lot of people just want a car that takes them from home to the market, they don't want something fancy or they want something small as a second car," he said.
Indian motorcycle maker Bajaj and France's Renault are looking at making a $3,000 car for the Indian market that would get 34-km per litre of fuel. Tata has said it is targeting its car at Indian and other emerging markets. The car would cost about half the price of its nearest rival in the Indian market made by Japanese-owned Maruti Suzuki that sells for $4,800.
A Tata Motors board member said the car would get 25-km per litre of fuel. Tata has said it believes it could eventually sell one million 'People's Cars' annually.
Tata, which has been on an aggressive overseas expansion drive, is also expected to win its reported two-billion-dollar bid for the British Land Rover and Jaguar brands in January — which would put it in the unusual position of making two prestige cars as well as the world's lowest-cost automobile.
Environmentalists see clouds on the horizon if the cheap car is a winner, fearing it will further congest India's clogged roads and add to choking pollution. But Tata says the car will create no more pollution than a motorbike.
India's car market is a huge draw because car penetration is just seven per 1,000 people compared to 550 per 1,000 in such countries as Germany or 476 in France, said Dilip Chenoy, Siam director general.
Monday, January 7, 2008
Tamakoshi get EPF nod for fund
The much-talked 309 Megawatt (MW) hydro project is going to be built. The board meeting of Employees' Provident Fund (EPF) and Nepal Electricity Authority (NEA) decided to finance the project as principal investors.
The highly attractive and low-cost project had been awaiting decision on its fate from the Employees' Provident Fund and Nepal Electricity Authority for long.
The EPF agreed today to invest a total of Rs 12 billion – Rs 10 billion in loan and two billion in shares, following the consent of the Ministry of Finance to invest on the Tamakoshi project. Earlier, there was a confusion on whether the project should be built on domestic or foreign investment.
As the EPF has decided to invest, Citizen Investment Trust (CIT), different banks and Rastriya Beema Sansthan (RBS) also are joining in for the hydel project.
The peaking run-of-river project Upper Tamakoshi that has 309 MW capacity is estimated to cost around Rs 27.44 billion. "Out of which 70 per cent will be invested jointly by NEA and EPF and 30 per cent would be raised by floating shares to the people and financial institutions — Citizen Investment Trust, Rastriya Beema Sansthan and other financial institutions," said chief of the project Mrigendra Bahadur Shrestha.
The first phase of the hydro project will generate 309 megawatt and in next ten years it will be upgraded to 556 Megawatts, said project chief Shrestha. "If, the project kicks-off in 2009, it will be completed by 2019," he said, adding that the project will take 10 years to complete.
It is thought to be spinning money after 30 years. "NEA will be earning a huge amount of money that can help construct at least one hydroproject every year."
The project will float 10 per cent of the shares to the locals of Dolakha district, where the project is being constructed.
IN SET
The ownership pattern
NEA — 51 per cent
EPF — 20 per cent
Dolakha residents — 10 per cent
General public — 10 per cent
NEA employees — 5 per cent
Financial Institutions — 4 per cent
The highly attractive and low-cost project had been awaiting decision on its fate from the Employees' Provident Fund and Nepal Electricity Authority for long.
The EPF agreed today to invest a total of Rs 12 billion – Rs 10 billion in loan and two billion in shares, following the consent of the Ministry of Finance to invest on the Tamakoshi project. Earlier, there was a confusion on whether the project should be built on domestic or foreign investment.
As the EPF has decided to invest, Citizen Investment Trust (CIT), different banks and Rastriya Beema Sansthan (RBS) also are joining in for the hydel project.
The peaking run-of-river project Upper Tamakoshi that has 309 MW capacity is estimated to cost around Rs 27.44 billion. "Out of which 70 per cent will be invested jointly by NEA and EPF and 30 per cent would be raised by floating shares to the people and financial institutions — Citizen Investment Trust, Rastriya Beema Sansthan and other financial institutions," said chief of the project Mrigendra Bahadur Shrestha.
The first phase of the hydro project will generate 309 megawatt and in next ten years it will be upgraded to 556 Megawatts, said project chief Shrestha. "If, the project kicks-off in 2009, it will be completed by 2019," he said, adding that the project will take 10 years to complete.
It is thought to be spinning money after 30 years. "NEA will be earning a huge amount of money that can help construct at least one hydroproject every year."
The project will float 10 per cent of the shares to the locals of Dolakha district, where the project is being constructed.
IN SET
The ownership pattern
NEA — 51 per cent
EPF — 20 per cent
Dolakha residents — 10 per cent
General public — 10 per cent
NEA employees — 5 per cent
Financial Institutions — 4 per cent
Saturday, January 5, 2008
Gold hits record
Gold price touched historic high of Rs 17,490 per 10 gram, in the domestic market on Friday. Earlier, it had recorded the highest of Rs 17,000 some 20 months ago.
Gold price in the domestic market increased by Rs 515 to Rs 17,490 per 10 gram from last week's closing of Rs 16,975.
The precious yellow metal in the local bullion market opened at Rs 17,105 on Tuesday as the market remained closed on Sunday and Monday due to the murder of a gold trader. The traders also held protest rally against the murder of one of their colleagues.
On Wednesday also, the price of hallmark gold remained stable at Rs 17,105 but on Thursday it shot up by Rs 115 to Rs 17,320. However, the price continued to rise on Friday, the last day of trading, and touched the historic high of Rs 17,490 — a rise by Rs 170 — per 10 gram. "The market closed at Rs 17,490 a new record high," according to Nepal Gold and Silver Dealers' Association's (NEGOSIDA).
"The record price in global crude prices that crossed $100 per barrel for the first time and further weakening of dollar pushed the price of gold up," states the association.
Similarly, in the international market also, it recorded $865 per ounce — a record high in last 28 years. A year back on January 4, the gold price was hovering around $600 but within a year, it shot up to $865 per ounce.
Similarly, silver price also witnessed a rise by Rs 10 this week from last week's closing of Rs 315 per 10 gram. It was traded at Rs 316 on Tuesday and Wednesday. But on Thursday, the silver price increased by Rs 4.50 to Rs 320.50 and on Friday, the last day of the trading it closed at Rs 325.
Gold price in the domestic market increased by Rs 515 to Rs 17,490 per 10 gram from last week's closing of Rs 16,975.
The precious yellow metal in the local bullion market opened at Rs 17,105 on Tuesday as the market remained closed on Sunday and Monday due to the murder of a gold trader. The traders also held protest rally against the murder of one of their colleagues.
On Wednesday also, the price of hallmark gold remained stable at Rs 17,105 but on Thursday it shot up by Rs 115 to Rs 17,320. However, the price continued to rise on Friday, the last day of trading, and touched the historic high of Rs 17,490 — a rise by Rs 170 — per 10 gram. "The market closed at Rs 17,490 a new record high," according to Nepal Gold and Silver Dealers' Association's (NEGOSIDA).
"The record price in global crude prices that crossed $100 per barrel for the first time and further weakening of dollar pushed the price of gold up," states the association.
Similarly, in the international market also, it recorded $865 per ounce — a record high in last 28 years. A year back on January 4, the gold price was hovering around $600 but within a year, it shot up to $865 per ounce.
Similarly, silver price also witnessed a rise by Rs 10 this week from last week's closing of Rs 315 per 10 gram. It was traded at Rs 316 on Tuesday and Wednesday. But on Thursday, the silver price increased by Rs 4.50 to Rs 320.50 and on Friday, the last day of the trading it closed at Rs 325.
Thursday, January 3, 2008
NRB plans new package
Nepal Rastra Bank (NRB) is bringing a package — within the first week of Magh — to deal with current capital market dispute. "The central bank is categorically going through the books of financial institutions on margin lending and its repercussions on financial institutions and capital market," a senior official at the central bank, said adding that the new package will minimise the risks of financial institutions and stabilise capital market. However, the NRB refused to revoke its decision of temporary ban on margin lending.
Today, the fourth consecutive day, also Nepse did not witness any trading because of a group of investors, who opposed the trading at the Nepse floor. Earlier, brokers and investors had agreed, in the morning, to open the floor for two hours today. "Stock exchange should not be closed," Navaraj Pokhrel, president of Nepal Brokers Association, said adding that brokers are against the trading halt.
"NRB might have done mistake but the investors should not halt trading," he added. But a group of investors, fearing a huge fall in shares prices, forced the brokers not to trade from Monday.
Meanwhile, speaking at an interaction at the Reporters' Club today, Dr Chiranjivi Nepal, chairman of Securities Board of Nepal (SEBON), the regulatory body of capital market said that globally capital market is directed by three principles: transparency, fair play and reduction of systemic risk. "But Nepali capital market lacks all these parameters," he said challenging the investors to open the market and prove that margin lending is not fuelling the market.
Rewat Bahadur Karki, general manager of Nepal Stock Exchange (Nepse), the sole secondary market, also requested the opposing investors to trade and test the market.
Narayan Poudel, director at the regulation department of NRB, the regulatory authority of the financial institutions, said that policies continue to change. "However, the central bank is trying to minimize the risk of financial institutions," he said adding that the central bank can not let financial institutions risk depositors money.
Today, the fourth consecutive day, also Nepse did not witness any trading because of a group of investors, who opposed the trading at the Nepse floor. Earlier, brokers and investors had agreed, in the morning, to open the floor for two hours today. "Stock exchange should not be closed," Navaraj Pokhrel, president of Nepal Brokers Association, said adding that brokers are against the trading halt.
"NRB might have done mistake but the investors should not halt trading," he added. But a group of investors, fearing a huge fall in shares prices, forced the brokers not to trade from Monday.
Meanwhile, speaking at an interaction at the Reporters' Club today, Dr Chiranjivi Nepal, chairman of Securities Board of Nepal (SEBON), the regulatory body of capital market said that globally capital market is directed by three principles: transparency, fair play and reduction of systemic risk. "But Nepali capital market lacks all these parameters," he said challenging the investors to open the market and prove that margin lending is not fuelling the market.
Rewat Bahadur Karki, general manager of Nepal Stock Exchange (Nepse), the sole secondary market, also requested the opposing investors to trade and test the market.
Narayan Poudel, director at the regulation department of NRB, the regulatory authority of the financial institutions, said that policies continue to change. "However, the central bank is trying to minimize the risk of financial institutions," he said adding that the central bank can not let financial institutions risk depositors money.
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