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Bank of India Reviewing Loan to Firms Named in Probe

Bank of India and other state-run banks were asked by Finance Minister Pranab Mukherjee to check their “exposures” to the companies. Photographer: Adeel Halim/Bloomberg
Bank of India and other state-run banks were asked by Finance Minister Pranab Mukherjee to check their “exposures” to the companies. Photographer: Adeel Halim/Bloomberg

Nov. 26 (Bloomberg) -- Bank of India, a state-run lender, began reviewing loans to companies named by federal investigators in a bribery and improper credit disbursal probe, Chairman and Managing Director Alok Kumar Misra said.

Authorities Nov. 24 arrested Ramachandran R. Nair, chief executive officer of LIC Housing Finance Ltd., Rajesh Sharma, chairman of Mumbai-based securities firm Money Matters Financial Services Ltd. and executives at Bank of India and two other lenders. The Central Bureau of Investigation accused Sharma of conspiring with Nair to bribe state-run lenders’ executives in exchange for loans for clients and confidential information.

Bank of India and other state-run banks were asked by Finance Minister Pranab Mukherjee to check their “exposures” to the companies. The probe may slow lending growth at state-run banks, which account for 77 percent of credit in Asia’s second-fastest growing major economy. Real estate developers may face higher borrowing costs with loans being delayed, said Parikshit Kandpal, a Mumbai-based analyst at Ambit Capital Pvt.

“We are going to see increased scrutiny by banks now,” said Kandpal. “Real estate, infrastructure and power companies, all such projects will now be scrutinized, so all will get impacted.”

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

Opposed Custody

“All the accused have opposed the custody by the CBI,” said Anjani Kumar Singh, a lawyer representing Johar. “Our defense will be based on the investigation report which CBI files.”

Satish Maneshinde, the lawyer for Money Matters’ Sharma and Gattani, declined to comment. Sudipto Sil, LIC Housing Finance’s spokesman, said he didn’t have information on Nair’s lawyer.

Bank of India fell 6 percent to 393.8 rupees, its lowest in four months, while Punjab National dropped 3 percent to 1,147.85 rupees at 11:24 a.m. in Mumbai. Central Bank plunged 9.3 percent to 189.85 rupees.

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.

More Diligent

Punjab National Bank will be more diligent while providing loans to real-estate companies and doesn’t see the federal bribery probe slowing the pace of lending, Chairman K.R. Kamath said in a telephone interview today.

Bank of India’s checks found the loan to BGR Energy Systems Ltd., one of the companies mentioned in the probe, to be “satisfactory,” said Misra. The credit to Ashapura Minechem Ltd. was over 40 years old, he said.

BGR Energy hasn’t dealt with Money Matters, the company said in a statement yesterday. Ashapura said it hasn’t borrowed money from banks in the past two years.

Money Matters was acting as a mediator and facilitator for corporate loans and credit extended to builders, P. Kandaswamy, CBI’s inspector general for Mumbai Zone 2 said on Nov. 24. Money Matters is cooperating with investigating agencies and its board will meet today to discuss the matter, the company said in a statement to the Bombay Stock Exchange yesterday.

Property Stocks

A key property stocks gauge slumped more than 5 percent for a second day after the CBI said LIC Housing’s Nair showed “undue favor” to companies including DB Realty Ltd. and Sunil Mantri Realty Ltd. The agency also said the bankers showed “undue favor” to Lavasa Corp. another property developer.

DB Realty Managing Director Shahid Balwa said the CBI had requested documents on a 2 billion rupee ($44 million) loan from LIC Housing. That “has nothing to do with the current situation,” he said.

Money Matters helped arrange a 1.15 billion rupee loan from LIC Housing this year for Mumbai-based Sunil Mantri Realty, Chairman Sunil Mantri said. The builder paid Money Matters a brokerage fee, which ranged from 1 percent to 3 percent, he said.

Lavasa used Money Matters to help sell a stake in an affiliate, said President Rajgopal Nogja.

One-Off Probe

“You are giving money based on the appraisals that you carry out and it depends on the way interest rates are in the system, the liquidity is in the system,” Keki Mistry, chief executive officer of Housing Development Finance Corp. said in an interview yesterday. This probe is a “one off,” he said.

Life Insurance Corp. is looking into its investment processes after CBI arrested one of its officials, Chairman T.S. Vijayan said in an interview with Bloomberg UTV yesterday. The company will promote V.K. Sharma as chief executive officer, Vijayan said today.

“Sentiment may be a bit negative on India because of all these governance issues,” Mistry said. “But I think markets are mature to distinguish between good companies and bad companies.”

To contact the reporters on this story: George Smith Alexander in Mumbai at; Anoop Agrawal in Mumbai at

To contact the editors responsible for this story: Jeffrey St.Onge at; Arijit Ghosh at

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