Yet another case of endless corruption in India. Education, and greed seems to make people more corrupt. Why should this shock anyone? Corruption is the decay of great civilizations.
Nov 24, 2010
MUMBAI—Indian authorities Wednesday arrested several senior bankers, alleging they took huge bribes to issue corporate loans, the latest in a series of corruption scandals that have rattled the country in recent weeks.
The Central Bureau of Investigation, a crime-investigation agency, arrested eight people: four senior bankers at state-controlled lenders, three from a financial services firm, and one from India's largest insurance company.
P. Kandaswamy, inspector-general at the agency's Special Crime Branch, told a news conference that executives of the financial services firm, Money Matters Group, were allegedly bribing senior officials of state-run banks "for facilitating large-scale corporate loans." Investigators didn't say how much bribe money allegedly changed hands.
If the scandal in any way undermines investor faith in India's banks, it will be a rare black mark for a financial system that has withstood the ravages of the global economic crisis better than almost anywhere else, in part because Indian regulators have been conservative in permitting the more esoteric practices that caused trouble on Wall Street, and in part because India's banks have been domestically focused.
Three Money Matters executives, including its chairman and managing director, Rajesh Sharma, were among those arrested. The others were R.R. Nair, chief executive of mortgage lender LIC Housing Finance Ltd.; R.N. Tayal, general manager at Bank of India; Maninder Singh Johar, non-executive director at Central Bank of India; and Venkoba Gujjal, deputy general manager at Punjab National Bank. The CBI also arrested Naresh Chopra, secretary investment, at state-run insurance giant Life Insurance Corp., which owns 36.5% of LIC Housing Finance.
All eight are in CBI custody until Nov. 29.
In a statement, LIC Housing said the company had followed all guidelines and regulations in approving all loans. The company would take all necessary steps "to ensure that interests of various stakeholders would be fully protected," it said.
Executives at Money Matters couldn't be reached for comment. Speaking to the CNBC-TV18 television channel, S. Sridhar, chairman and managing director of Central Bank of India, said Maninder Singh Johar isn't a bank employee. "It may have nothing to do with the Central Bank of India," he said.
Executives at LIC and the other banks couldn't be immediately reached for comment. Officials at the Reserve Bank of India, the central bank, didn't immediately comment.
India's state-run banks and insurance companies—in particular, LIC—are viewed as holding the public's trust and are considered safe havens with an implicit government guarantee. The accusations against LIC Housing Finance could hurt the steadfast image of LIC, the nation's largest insurance company.
Junior Finance Minister Namo Narain Meena told reporters that these are cases of bribery and that there is "no threat to the banking system." All loans in question are secured and the non-performing loans in the banking sector are less than 1%, he added.
Separately, the federal finance ministry said in a statement it has asked for reports from LIC and the three state-run banks on the matter.
The statement said the chairman of Central Bank of India "has confirmed that as per information available, there is no impact of the above development on asset quality." It added that the chairman of Punjab National Bank has said "there is no information linking the above incidence to any loan account of the bank."
Still, investors were rattled, driving down stocks as news of the arrests broke late in the Mumbai trading day. Shares in LIC Housing Finance slumped more than 18% to 1,068.55 rupees ($23.45). Central Bank of India fell 8% to 197.90 rupees, Punjab National Bank fell 3.1% to 1,264.45 rupees and Bank of India declined 5.9% at 446.40 rupees. Money Matters Financial Services Ltd., part of the Money Matters Group, fell 20% to 531.20 rupees. Others banking and real-estate stock declined, too, dragging the benchmark Sensitive Index 1.2% lower, though one analyst said the market would absorb the news.
"I think the long-term players will not be affected and the growth story of India still remains intact," said Alex Mathews, head of research, Geojit BNP Paribas Financial Services.
The alleged scam comes at a time when there has been a general airing of corruption and malpractice across the political and business spectrum in India. Just a few weeks ago, in an unrelated alleged housing scam, the chief minister of Maharashtra state was forced to resign when it became clear an apartment building for war veterans and widows had been allocated to politicians and their kin.
And in New Delhi, the federal government has been sharply criticized after a government auditor reported that a telecommunications bandwidth allocation in 2008 was so mishandled that it deprived the government of $39 billion in license fees. Even members of the nation's aggressive media have been facing allegations of being too cozy with corporate interests.
The CBI alleged that the loans in question were given to companies including: Lavasa Corp., a unit of Hindustan Construction Co.; Oberoi Realty Ltd.; Ashapura Minechem Ltd.; Suzlon Energy Ltd.; DB Realty Ltd., a part of the Dynamix Balwas Group; and privately owned firms Emaar MGF Land Ltd., Mantri Realty and Kumar Developers Ltd.
Vikas Oberoi, managing director at Oberoi Realty, said the company hasn't taken any loans from LIC Housing Finance "and any other bank in the past three years."
Lavasa President Rajgopal Mugja said the company dealt with many brokers, including Money Matters, for its loans "and there are not illegal transactions that I am aware of."
Dynamix Balwas Group Chairman Vinod Goenka said there was one case when DB Realty used Money Matters to get a loan. "In that particular period, our staff was not available and this is why we must have sought their [Money Matters'] services."
Mantri Realty Chairman Sunil Mantri said the company usually gets its loans through as many as 20 consultants. "We never indulge into such [bribery] activities," he said.
Suzlon said it engaged Money Matters as a financial adviser to raise a loan in 2009. "We are confident that this transaction was in complete compliance, in all its aspects, with all regulatory and legal requirements," the wind-turbine maker said in a statement.
Executives at Ashapura Minechem and Emaar MGF weren't immediately available for comment, while Kumar Developers' officials declined to comment.
Source: Wall Street Journal Asia
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