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This is the dark case. Bombay broker Harshad Mehta acted as intermediary in inter-bank government securities deals and routed the settlement money through his own account. From late 1991 he used thousands of crores of bank funds to bid up shares such as ACC, and the Sensex climbed from about 1,000 to over 4,400 by April 1992.
A bank receipt (BR) was a paper IOU in which a bank confirmed that it had sold securities and held them on the buyer's behalf, without actually transferring them. Counterparties accepted BRs instead of the securities themselves, so a BR could be issued with no securities behind it. Small banks such as Bank of Karad and Metropolitan Co-operative Bank issued BRs that were effectively fake, which let the broker pull real money out of large banks against worthless paper.
Bank treasuries were pushed to earn returns above the rates allowed on regulated lending. Brokers who offered high yields through ready-forward deals were therefore welcomed rather than scrutinized. The scam depended less on deceiving the banks than on their managers' incentive not to ask where the returns came from.