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Mumbai: Housing finance scam, credit scam, or the continuation of the Central Bureau of Investigation’s (CBI) attempt to give its image a fresh veneer?

There was no immediate answer to that question on Wednesday, when CBI claimed to have busted a racket where key executives in large finance companies, including banks and India’s largest insurer (a state-owned firm) sanctioned large corporate loans and disclosed confidential information in return for bribes. It arrested five executives from Life Insurance Corp. of India (LIC), LIC Housing Finance Ltd, Bank of India (BoI), Central Bank of India and Punjab National Bank (PNB). CBI also arrested three top executives at money market intermediary Money Matters Financial Services Ltd for allegedly bribing executives in finance companies to issue loans running into thousands of crores to clients.

The agency did not put an actual number to the size of the alleged scam and Mint couldn’t independently ascertain this.

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On Wednesday, CBI, following up on a complaint filed on Monday, raided offices of these companies in Mumbai, Delhi, Chennai, Jaipur, Kolkata and Jalandhar. It registered five cases and arrested Naresh K. Chopra, secretary (investment) at LIC; Ramachandran Nair, CEO at LIC Housing Finance; R.N. Tayal, general manager at BoI, Mumbai; Maninder Singh Johar, director (chartered accountant) at Central Bank of India, Mumbai; Venkoba Gujjal, deputy general manager, PNB, New Delhi; Rajesh Sharma, chairman and managing director, Money Matters; and Suresh Gattani and Sanjay Sharma, executives at Money Matters. CBI claims the executives at the finance companies accepted bribes ranging from 7.5 lakh to 45 lakh from the Money Matters executives in return for sanctioning loans to their clients. The LIC executive has been accused of leaking inside information on the insurer’s investments and for “arranging suitable investments" for Money Matters clients.

Also Read | “LIC’s triple blow: 14,000 cr hole; loss at LIC MF; govt scrutiny"

photoInterestingly, one of the companies involved—DB Realty and Nair of LIC Housing Finance is accused of accepting a bribe to sanction a loan to this firm—is also associated with the ongoing 2G controversy. DB was a promoter of Swan Telecom and subsequently sold a stake to Etisalat.

LIC Housing Finance said in a release that it had adhered to all procedures and guidelines while sanctioning loans. A senior PNB executive said the bank was awaiting details, but that the issue looked like a “simple case of bribery" and that there was “no issue on the asset quality". A senior executive at BoI said his bank would respond only after its own investigation into the issue was complete.

Central Bank of India’s chairman and managing director S. Sridhar clarified that Johar is an independent director on the bank’s board appointed by the government and “not an employee of the bank".

LIC did not immediately respond to repeated requests seeking comment.

The ministry of finance confirmed the arrests in a release and said it had called for reports from the finance companies whose offices were raided.

More arrests and raids could follow in coming days with CBI’s lawyer Ejaz Khan saying that a consortium of 15 banks had sanctioned loans through Money Matters to several companies, including Suzlon, Emaar MGF, Ashapura Minechem, Jaypee Group, BGR Energy, OPG Group, Sunil Mantri Group, Lavassa, Trishna Group, and Kumar Developers. Mint couldn’t independently verify the identity of these companies and didn’t reach out to them for comment late Wednesday evening. Suzlon issued a release admitting it had used Money Matters as an adviser in 2009 and that it was confident that the transaction was “in complete compliance, in all its aspects, with all regulatory and legal requirements".

Khan said that CBI has records of telephone conversations. Still, in the absence of specific evidence against the executives arrested, the court has given it till 29 November to gather evidence.

Although Money Matters is a low-profile firm, its involvement brings to light an increasingly common practice in the banking industry. State-owned banks, many of which are listed, need to aggressively issue loans to meet expectations on returns and earnings. Lacking the capacity to process loan applications, they ask their clients to route these through intermediaries such as Money Matters.

These intermediaries crunch numbers, prepare project reports, even carry out due diligence, before presenting the papers to the bank concerned.

In response to CBI’s investigation, Bankex, the sectoral banking index of the Bombay Stock Exchange fell 2.94% to 13,477.92 points. And responding to initial rumours about the investigation concerning a housing finance scam that eventually proved false, the realty index fell 2.88% to 3,041.62 points. The exchange’s benchmark index, the Sensex, dropped 1.18% to 19,459.85 points.

Shares of LIC Housing Finance and Central Bank plunged 18.32% and 8.02%, respectively.

Amar Ambani, head of research (private clients) at IIFL, said, “The late afternoon news about CBI raids on housing finance and real estate companies led to a major fall in stock prices of realty, banking and housing finance companies. It seems like the year 2010 may be remembered as a scam-hit year."

Interestingly, the CBI’s investigation of LIC Housing follows a review by the government of LIC’s investments. Mint reported on 16 November that the government has scrutinized LIC’s investment books for 2007-08 and 2008-09 following complaints about its investments in a few companies. The finance ministry is also closely looking at the exposure of its subsidiary, LIC Mutual Fund Asset Management Co. Ltd, to liquid and money market schemes that led to a loss of 120 crore.

Dinesh Unnikrishnan, Joel Rebello, Anup Roy and Ashwin Ramarathinam in Mumbai, Madhurima Nandy in Bangalore, and Sahil Makkar in New Delhi contributed to this story.

Update (8 December 2018): Rajesh Sharma has been acquitted by a special CBI judge in this case.

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