Police Get Four More Days to Investigate Suspects in Indian Loan Probe

An Indian court granted investigators four more days to question financial executives named in a corruption probe into the nation’s largest insurance company and some state-owned banks.

The special court ordered LIC Housing Finance Ltd. Chief Executive Officer Ramachandran R. Nair and seven other bank and brokerage officials to be held until Dec. 3 at a hearing yesterday in Mumbai. Police arrested the officials last week as part of an investigation into bribes and improper loan disbursements.

Indian shares slumped last week on concern the corruption probe in Asia’s second-fastest-growing major economy would widen. Finance Minister Pranab Mukherjee asked state-owned banks to review loans to the companies named in the investigation and the arrests followed gridlock in Parliament as opposition parties pushed for a separate investigation into the alleged sale of phone licenses at below-market rates.

“Issues of corruption and corporate governance have been a matter of concern for India and it needs to be tackled,” said Walter Rossini, who manages $350 million in an India fund at Aletti Gestielle Sgr Spa in Milan. “It is important because Indian companies are more leveraged than before and they are in the process of raising a lot of capital.”

Sensitive Index

India’s benchmark Sensitive Index has fallen for the past three weeks. Claris Lifesciences Ltd., seeking funds through an initial share sale, cut the offer price on Nov. 26 and extended the deadline for bids by four trading days. The Sensex rose 0.8 percent to 19,564.71 at 2:16 p.m. in Mumbai trading.

India was ranked 87th out of 178 countries in Transparency International’s 2010 Corruption Perceptions Index, scoring the same as Albania, Liberia and Jamaica. China was rated less corrupt in 78th place.

Authorities are focusing on 16 billion rupees ($349 million) of loans made by Life Insurance Corp. of India and LIC Housing, according to a finance ministry official who declined to be identified.

“We have collected voluminous documents,” Ejaz Khan, the Central Bureau of Investigation’s lawyer, told the court in Mumbai yesterday. “To ascertain the entire modus operandi we need more time.”

‘Safe’ Investments

Finance Minister Mukherjee said today investments made in state-run Life Insurance Corp. are “safe.” The government is in touch with the Reserve Bank of India Governor Duvvuri Subbarao and LIC Chairman T.S. Vijayan, Mukherjee told reporters in New Delhi

The CBI has accused Rajesh Sharma, chairman of securities firm Money Matters Financial Services Ltd., of conspiring with LIC Housing’s Nair to bribe executives of state-run lenders in exchange for loans for clients and confidential information.

The investigation into Money Matters’ Sharma was “orchestrated” by a business rival or a disgruntled former employee, according to his lawyer, Satish Maneshinde.

Others arrested in the investigation include: R.N. Tayal, a manager at the Bank of India; Maninder Singh Johar, a part-time director at the Central Bank of India; Venkoba Gujjal, deputy general manager at Punjab National Bank; Sanjay Sharma and Suresh Gattani of Money Matters; and Naresh Chopra, investment secretary at Life Insurance Corp.

‘Opposed’ to Custody

“All the accused have opposed the custody by the CBI,” Anjani Kumar Singh, Johar’s lawyer, said in an interview on Nov. 26. “Our defense will be based on the investigation report which CBI will file.”

Money Matters is cooperating with investigating agencies, the company said in a statement on Nov. 25.

The arrest of Central Bank’s Johar won’t have any effect on the bank’s operations, said S. Sridhar, chairman and managing director of the Mumbai-based lender. Punjab National Bank will be more diligent while providing loans, Chairman K.R. Kamath said in a telephone interview.

Bank of India is reviewing loans given to companies mentioned by investigators, said Chairman Alok Kumar Misra.

The nation’s capital market regulator is taking all steps to protect investor confidence and will investigate any “unusual market activity,” Prashant Saran, a member of the Securities and Exchange Board of India, said on Nov. 26.

To contact the reporters on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net; Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net

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