The country’s top bankers have assured the Reserve Bank of India (RBI) that they do not see any systemic problem arising from the bribe-for-loan scam.
RBI, at a post-policy review today, sought views from the banks on the issue.
“RBI wanted to know when these loans were given, whether they were satisfactory, what was the security, among other things,” said Bank of India Chairman and Managing Director Alok Misra.
The scam came to light following arrests by the Central Bureau of Investigation (CBI) of some top finance executives on Wednesday.
“These are isolated instances which will be properly reviewed. Appropriate people will be punished. There is no systemic issue, no lack of regulation,” HDFC Bank Managing Director Aditya Puri told reporters after the meeting.
Separately, State Bank of India Chairman O P Bhatt echoed the view. “This is not a major issue. I think our business will continue to grow. Realty and housing are very important sectors today,” Bhatt said on the sidelines of a meeting of the Indian Banks’ Association.
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“By and large, the banking sector has been prudent in lending to these sectors. We always monitor the end-use of funds we lend,” he added.
Bankers told RBI that loans were given to reputed corporate houses and proper due diligence was done.
Misra said there was no systemic risk. “All due diligence was done, and we have already bifurcated our sourcing and sanctioning functions. Then, we have multiple layers over this. It will not be possible for a single individual to influence the process,” he said.
The bankers also ruled out restrictions on loans to the real estate sector.
“There is no clampdown on any kind of lending,” Puri said. Misra said there would be no adverse impact on real estate lending and banks would continue to lend to viable projects. Bank of India’s exposure to the real estate is about Rs 3,800 crore.
On Wednesday, CBI arrested eight people, including senior executives of banks and housing finance companies, for giving loans to companies after taking bribes. It is alleged that these officials colluded with real estate companies to sanction huge loans, overriding mandatory conditions.
Those arrested include LIC Housing Finance CEO R R Nair, Life Insurance Corporation Secretary (Investments) Naresh K Chopra, Central Bank of India Director (Chartered Accountant) Maninder Singh Johar, Bank of India General Manager R N Tayal and Punjab National Bank Deputy General Manager Venkoba Gujjal.
CBI also arrested Rajesh Sharma, the chairman & managing director of Money Matters Financial Services (MMFSL), a non-banking finance company specialising in debt syndication, and two other executives, Suresh Gattani and Sanjay Sharma.
A first information report filed by CBI with the Bombay High Court named over 20 corporate houses, but not as accused. These include Lavasa, Emaar MGF, Oberoi Realty and DB Realty.
Other companies whose dealings with MMFSL have come under CBI’s scanner include the Jaypee Group, JSW Power, Pantaloon, Adani, Religare, BGR Energy, Ashapura Minechem and Suzlon.
Bloomberg reports: Indian investigators were investigating Rs 1,600 crore ($349 million) of loans extended by Life Insurance Corp. of India and LIC Housing Finance Ltd, said a finance ministry official who declined to be identified.