Executives in India loans probe to face hearing: sources

By Sumeet Chatterjee and Indulal P.M.

MUMBAI (BestGrowthStock) – Executives from financial firms arrested in a bribes-for-loans investigation, the latest scandal to rock India, were set to appear before a special court in Mumbai later on Monday, sources involved in the matter said.

The probe, unveiled last week, comes close on the heels of a scandal involving allocation of cellular licenses at below-market prices that has paralyzed parliament, and threatens to tarnish fast-growing India’s image as a favored investment destination.

India’s investigative agency will ask the court to extend the custody of the executives as its investigation continues, one of the sources said.

A source on Sunday said the government and opposition parties would meet on Tuesday to try to break a deadlock in parliament over the telecoms scandal, which a government investigation said may have cost the country up to $39 billion and triggered the resignation of the telecoms minister.

India’s main share index has lost 1.5 percent since before the latest scandal broke on Wednesday, with shares in property companies hit especially hard, although the index was up 1.27 percent on Monday.

“If there is another revelation or another scam, we can expect a further correction. If there is no new scam or revelation, the market will hold on,” said Ambareesh Baliga, vice president at Karvy Stock Broking.

“There is a lot of caution among investors, but it is not negative. For example, the markets have already discounted the logjam in Parliament. But any further revelations could be the last straw,” he said.

The firm at the center of the bribes-for-loan investigation, Money Matters Financial Services Ltd, said on Monday that funds raised from institutional investors in a recent $97 million share sale were placed in a bank deposit and would not be withdrawn or managed without board approval.

Shares in Money Matters, which allegedly offered bribes on behalf of several companies in exchange for large corporate loans, were down their daily limit of 10 percent on Monday and have lost nearly 50 percent since their close on Tuesday, the day before two of its top executives were arrested.


Eight executives from public and private-sector financial institutions have been arrested in the scandal, one of several to dog the government of Prime Minister Manmohan Singh and test India’s ability to crack down on corruption.

Those arrested include senior officials at state-run Central Bank of India, Punjab National Bank and Bank of India for allegedly accepting bribes for sanctioning loans for corporate houses.

Two sources at India’s Central Bureau of Investigation said that the agency would produce all eight of the accused in a CBI court later on Monday and request the extension of their custody for further investigation.

“Our interrogation of all the eight accused is not complete so far, and we need more time to find out the details from them,” said one of the CBI sources.

A notice at the CBI court in Mumbai said hearings in five individual cases involved in the loans investigation were scheduled for Monday.

The Times of India said two of the banks, Punjab National Bank and Bank of India, had written off about 4 billion rupees ($87 million) in the first three months of this fiscal year.

A majority of the bad debt write-offs include defaults on loans extended to the real estate sector, the newspaper said, without saying where it got the information.

Officials at the banks and the federal CBI could not immediately be reached by Reuters for comment. The CBI was set to examine all write-offs and big loans extended by the state-run banks hit by the scandal, especially to the booming real estate sector, Times of India said.


Last week the CBI widened its probe to 21 firms for links to the bribes-for-loans scandal, and many of the companies linked to the case are connected to the booming infrastructure sector.

Several leading Indian companies were named in court documents filed by the CBI last week and include the world’s third largest wind turbine maker, Suzlon Energy, infrastructure company HCC’s Lavasa unit and real estate firm DB Realty.

All three have denied any wrongdoing.

Bond and rupee markets in one of the world’s fastest growing emerging economies remained unaffected as traders did not view it as a risk to the banking system.

Investors so far remain keen to tap into a country with a young and fast-urbanizing population of 1.2 billion. Economic growth is forecast at 8.5 percent in 2010-11, and between 9 and 10 percent a year after that, rivaled only by China among major economies.

($1=45.8 rupees)

(Writing by Tony Munroe; editing by Jui Chakravorty and Sanjeev Miglani)

Executives in India loans probe to face hearing: sources