How CR Bhansali exploited India’s NBFC blind spots in the 1990s

Bhansali, a man of soaring ambition, emerged from humble roots to orchestrate one of the most audacious financial frauds of the 1990s. Coming within four years of the Harshad Mehta scandal, it exposed the vulnerabilities of India’s nascent non-banking financial sector.

Hailing from Sujangarh, Rajasthan, Bhansali was born into a modest jute-trading family. After early unremarkable years in his hometown, he relocated to Kolkata, where he qualified as a chartered accountant before setting himself up as a financial consultant. 

His game plan

Despite some success, recognition eluded him, and in search of greener pastures, he moved to Delhi in 1985 to set up CRB Consultants. By 1992, the operation had transformed into CRB Capital Markets (CRB Caps), a public limited entity, and Bhansali had shifted his operations to Mumbai. That’s where he launched CRB Mutual Fund and CRB Share Custodial Services, weaving a complex web of 133 unlisted companies and subsidiaries to facilitate his machinations. 

His modus operandi—luring investors and depositors with promises of high returns, paid not from genuine profits but from the capital of newer investors—wasn’t unique, nor was the initial reaction of agencies around him. His company earned an AAA rating from CARE, lending it an air of credibility.

From 1992 to 1996, Bhansali’s various firms—CRB Capital Markets, CRB Mutual Fund through the Arihant Mangal Growth Scheme, a closed-ended fund maturing in 1999, and CRB Corporation Ltd via its three public issues between May 1993 and December 1995—raised nearly ₹900 crore, enticing depositors with eye-popping annual returns of 24-32%.

His game plan centred on creating an illusion of profitability. So, he moved funds through shell companies and manipulated stock prices using privately-owned firms and cross-holdings between his public entities. Thus, CRB Capital Markets and CRB Share Custodial Services were among CRB Mutual Fund’s top investments. 

Retail investors were few since Bhansali basically got his friends to invest in his schemes in return for buying shares in their companies from them. He also exploited public listings of other companies, engineering transactions where shares were bought low, sold high, and repurchased later at inflated prices. These deals were recorded as artificial profits in his listed firms, giving them a misleading image of robust financial health, which in turn inflated their share prices and attracted more public investment. 

More encouragement came from rating agencies and was sustained with the benevolent support of his auditors.

His ultimate ambition, though, was to secure a banking licence. The intervening mini-scams were just stepping stones towards this goal. To that end, he siphoned off ₹59 crore from State Bank of India’s Mumbai branch by issuing fraudulent dividend warrants, which he encashed through fake accounts in Kolkata and Rajasthan.

Astonishingly, the Reserve Bank of India (RBI) entertained Bhansali’s bid for a banking licence. However, it didn’t give him one. 

Beginning of the end

That didn’t inhibit the man. He brazenly issued a prospectus for a group company’s private placement, falsely claiming that “CRB Group has promoted its own private sector bank, CRB Global Bank Ltd, and is shortly to begin commercial operations”. By now, his net worth had grown to ₹430 crore, up from just ₹2 crore five years ago, while his network of influence spanned politicians, spiritual leaders, and top-tier firms like Arthur Andersen.

However, to sustain the high returns promised to depositors, he had to keep his schemes in perpetual motion, turning it into a high-stakes game of financial jugglery. The 1995 stock market crash, which saw the BSE index plummet 30% over eight months, proved to be his nemesis. Desperate to keep his ponzi scheme afloat, Bhansali ventured into risky businesses, including financing a Bollywood film and pursuing a golf resort project near the Delhi-Jaipur Highway.

The end came in December 1996 when the RBI denied CRB banking status and suspended his mutual fund operations. Bhansali fled the country. In June 1997, CBI officials apprehended him from Hong Kong and brought him back to India. The agency froze his group’s bank accounts and filed a winding-up petition. Bhansali spent months in jail in 1997.

Beaten but not chastened, he retreated to Ghaziabad, reinventing himself as an educationist and embracing the spiritual refuge often sought by white-collar criminals. He founded the Global Society for Saraswati Consciousness (GSSCON) to spread the message of the goddess of learning.

While the CRB scam at ₹1,200 crore was modest by today’s standards, it had an immediate impact, prompting the government to tighten NBFC regulations by giving the RBI more oversight over them. Not that it would deter the next scamster.