The Central Bureau of Investigation (CBI) today arrested eight people, including senior executives of banks and housing finance companies, for giving loans to private builders after taking bribes.
While the extent of the latest real estate scam is still not clear, CBI has alleged that these officials colluded with realty firms to sanction huge loans, overriding mandatory conditions for such approvals.
"The CBI has busted a racket wherein a private financial services company, its CMD (chairman & managing director) and other associates were allegedly bribing senior officials of public sector banks and financial institutions for facilitating large-scale corporate loans," P Kandaswamy, head of CBI Mumbai Zone-2, told reporters here today.
The arrests were made after searches were conducted at various locations in Mumbai, Delhi, Chennai, Jaipur, Kolkata, and Jalandhar.
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. They 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.
CBI has alleged that the bank officials arrested also gathered confidential business information from financial institutions and received bribes from private financial services companies acting as mediators and facilitators of corporate loans.
When contacted, Vikas Oberoi, managing director of Oberoi Realty, said: "We are a zero-debt company and, hence, there is no question of taking any loan or giving any bribe.''
Vinod Goenka, managing director of DB Realty, in a television interview said his company had asked Money Matters for loan syndication and paid service charges for that. “The payment was not part of (a) payoff and was made by cheque to Money Matters. It was a paid service charge for loan syndication,'' he said.
In a statement, HCC and Lavasa said MMFSL is associated with them in a fee-based arrangement, acting as an agent for the sale of their properties. "In our companies, we work with several firms for raising funds and all our transactions are completely transparent and have been made through cheque payments."
Banking Secretary R Gopalan told reporters in Delhi that it is more a case of individual greed than a systemic crisis. “We will take whatever action is required,” he added.
Analysts said it is still too early to say whether the misdeeds of a few individuals reflected a systemic problem or would remain confined to a few institutions.
The scam rocked stock markets late in the day, with banking and realty stocks leading the decline. While the Sensex fell 231.99 points, LIC Housing Finance stock was down nearly 19 per cent after CBI raided its offices.
Realty stocks were under huge pressure, with DB Realty slumping nearly 16 per cent. Orbit Corp and HDIL fell over 5 per cent each, while DLF lost 3 per cent. Shares of Money Matters tanked 19.99 per cent to an intra-day low of Rs 531.20 on the Bombay Stock Exchange.
In a statement issued in the evening, LIC Housing Finance said the company has followed all procedures and due diligence consistent with board-sanctioned guidelines in approving the loans. All the loans are secured by underlying assets and have been approved in compliance with relevant regulatory norms.
As on date, all the loans in question are performing assets. Builder loans constitute 11.34 per cent of the total loan portfolio as on October 31 and gross non-performing assets stood at 0.08 per cent. Gross NPAs on individual loans were 0.84% and the provisioning cover on NPAs stands at 71.79 per cent.
Deepak Parekh, chairman of country’s largest home financier, HDFC, said that the scam could be just the tip of an iceberg and that the “facilitation charges” paid in some cases were as high as 7 per cent.
