Bribes for Loans Scandal Pulls Down Indian Share Markets


A series of financial scandals is testing the India’s ability to stand as one of the favourite destination in the world for overseas investors. The county, which is second only to the fastest growing Chinese economy, is haunted by number of irregularities and scandals, especially at the top level of the financial and manufacturing companies.

The Central Bureau of Investigation (CBI), the top most investigating agency of the country, unveiled a “bribes for loans” scandal on November 24. The country’s biggest life insurer, Life Insurance Corporation of India and several banks along with private real estate companies and a private brokerage firm are involved in the fraud.

Main allegation of the CBI is that the private real estate and manufacturing companies paid bribes through a private broking firm ‘Money Matters’, to obtain property loans from public sector banks and insurance companies. The top executives of the firms were arrested and kept in remand custody for further probe. The CBI said that it was probing 21 companies for possible links to the bribes for loans scandal.

India share markets BSE (Sensex) and broader index NSE (Nifty) were on losing streak as a result of the financial scandal revelation. The Sensex began to drop on November 22 with Ireland crisis and continued to drop with the unveiling of financial scandal involving 21 companies. It dropped from 19957 on Nov 22 to 19136 on Nov 26, a drop of 4.11%. The National Stock Exchange or Nifty dropped from 6010 on Nov 22 to 5751, a drop of 4.31% in 5 days.

Main companies involved

  • Public sector Company Life Insurance Corporation of India – Investment secretary, Naresh Chopra
  • L I C Housing Finance Ltd., a subsidiary to L I C of India and a mortgage lender with a market cap of about $2 billion – Chief Executive Officer, R R Nair
  • Public Sector Bank, Punjab National Bank with a market cap of $8 billion – Deputy General Manager Venkoba Gujjal
  • Public Sector Bank, Central Bank of India with a market cap of $2 billion – Director Maninder Singh Johar
  • Public Sector Bank, Bank of India with a market cap of $5 billion – General Manager R N Tayal

The companies denied any wrong doing and added they followed procedures. The Finance Minister Mr Pranab Mukherjee said the largest insurer L I C of India will not be effected with the revelation of financial bribery scandal and it was just a case of individuals involved in the scandal. The officials of the other companies also reacted on the same line.

Middleman Company

It was a private financial services company, “Money Matters,” whose website is closed as soon as the scandal was disclosed. The firm’s CEO Rajesh Sharma and his associates Sanjay Sharma and Suresh Gattani were arrested. The company said last month that it had raised $100 million by selling its shares to institutional investors including Fidelity, Morgan Stanley and the US-based Wellington.

Realty and Manufacturing Companies

There are several realty companies and manufacturing companies, which paid bribes to financial companies to obtain loans.

  • Suzlon Energy: The world’s third largest wind turbine maker after Denmark’s Vestas and Spain’s Gamesa with a market cap of $1.8 billion
  • D B Realty: Real estate firm with market cap of $1.3 billion that raised $325 million through IPO in February 2010
  • Religare Enterprises: Financial services group, with a market cap of $1.5 billion, owned by billion brothers Maivinder Mohan Singh and Shivinder Mohan Singh
  • Oberoi Realty: Realty firm – market cap of $1.9 billion
  • JSW Power: A subsidiary of JSW group that has business interest in steel, Energy and infrastructure
  • Jaiprakash Associates: India’s biggest builder of dams and a maker of cement and homes with a market value of $5.4 billion
  • BGR Refinery: Energy equipment supplier with market cap of $1 billion

The CBI said that not all the companies named in the FIR were involved in the scandal and the probe was still continuing.

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