Lic Housing Scam
Lic Housing Scam
Lic Housing Scam
financial institutions
MUMBAI: The Central Bureau of Investigation (CBI) has arrested eight finance executives, including the
chief of LIC Housing Finance, accusing them of taking bribes to give big corporate loans and sending
shockwaves through stock and property markets at a time when the government is buffeted by a series of
high-profile scandals.
LIC Housing Finance chief executive Ramachandran Nair, Life Insurance Corporation secretary for
investments Naresh K Chopta, Bank of India general manager RN Tayal, and Central Bank of India
director Maninder Singh Johar were among those arrested in the nationwide swoop by investigators.
The agency also arrested Rajesh Sharma, chief executive of Money Matters Group, a specialist loan
arranger that was the go-between for lenders and corporates and is at the centre of the scandal.
CBI said Money Matters 'either bribed or attempted to bribe' bankers to get loans for many companies,
including wind energy developer Suzlon, hill station township builder Lavasa, and Mumbai developer DB
Realty. The bankers were accused of seeking bribes of as much as Rs 50 lakh on transactions. CBI did
not share details.
News of the arrests, which broke during the closing hours of trade, hit stocks of some of the companies
involved. Shares in Money Matters led the tumble, losing 20%, while LIC Housing Finance and DB Realty
lost 19% and 17%, respectively. Central Bank of India lost 8.1% and Bank of India fell 5.3%.
"Officers of top management and middle management of various public sector banks and financial
institutions were receiving illegal gratifications from the private financial services company who were
acting as mediators and facilitators for corporate loans and other facilities from financial institutions," a
CBI statement said. The arrests come at a time the government is on the defensive and is accused of
condoning a culture of loot.
These are the biggest and most high-profile arrests since the Unit Trust of India corruption scandal a
decade ago and the 1992 securities scam.
Some saw the arrests and the publicity around them as diversionary tactics by the government. "While
the corruption in these financial institutions needs to be thoroughly probed, the timing of this action is
suspect. CBI is directly controlled by the government. At a time when the government is feeling the heat in
Parliament over the 2G scam, asking CBI to conduct raids across the country makes one suspect the
motive behind this," said Arvind Kejriwal, founder of NGO Parivartan and a Magsasay award winning
activist.
All the accused will be in CBI custody until Monday. They have been charged under the Prevention of
Corruption Act and, if convicted, could be jailed for up to seven years and lose retirement privileges.
Experts said the arrests could choke liquidity in the market, as banks apply the brakes on fresh lending,
especially to property firms that have been classified as 'sensitive' by the Reserve Bank of India, which
fears a speculative bubble building in the real estate sector.
"Liquidity will get tight as banks get more cautious towards financing real estate projects," said Vikas
Oberoi, managing director of Oberoi Realty , a Mumbai-based property developer.
Shankar Sharma, vice-chairman and joint managing director at First Global, said the crisis for the markets
may blow over. "It will have some sentiment value may be for half a day tomorrow (Thursday), but I think
the markets are smarter and would discern the good guys and the bad guys."
The domino effect of the arrests could force other lenders in the system, notably mutual funds and high
net worth individuals, to also curb lending to real estate firms.
"Liquidity in real estate papers has always been low and most investors hold them to maturity. Also, the
repaying capabilities of companies have been under question. So, to that extent, there are concerns with
such a scam breaking out," said Nandkumar Surti, chief investment officer, JPMorgan Asset Management
India.
Realty companies like Ackruti City, HDIL, Indiabulls Real Estate, Orbit Corp and Parsvnath Developers
slipped 2-7%. DB Realty plunged 16.23% and DLF was down 3%.
BHEL from capital goods space lost 2.6% and L&T was down 1.6%. In technology pack, TCS tanked
2.5%; Wipro was down 1.8% and HCL Tech down 1.4%. Infosys declined 0.5%.
NTPC, Reliance Power, Power Grid Corp, Tata Power and Suzlon Energy from power pack were down
0.7-1.7%. ACC and Ambuja Cements went down 1-2%.
Heavyweight ONGC slipped 2%; BPCL was down 0.7% and Cairn India down 0.9%. In metal segment,
Hindalco, Sterlite Industries and Jindal Steel lost 1-1.5%. SAIL plunged 2.6% and Sesa Goa was down
0.6% while Tata Steel gained 0.7%.
There was a mixed trend in auto space; Hero Honda, Bajaj Auto and Maruti Suzuki fell 1.3-1.8% while
Tata Motors went up 0.44% and M&M surged 3%.
Reliance Communications from telecom pack slipped 1.7% while Bharti Airtel rose 0.7% as Goldman
Sachs added the stock to conviction list and raised target price to Rs 430/share.
In midcap space, TVS Motor, Gujarat Flourochem, Apollo Tyres, SpiceJet and Akzo Nobel gained 3.4-8%
while Money Matters crashed 20% on talks of CBI raid on its premises.
Man Infra was down 15.38%. MVL and Shree Ashtavinayak fell 8-9%.
In smallcap space, Goenka Diamond, MSK Projects, Splash Media, Murli and Karuturi Global were up 1019.5% while Solvay Pharma, SEL Manufacturing, eClerx Services, Technofab Engg and Rollatainers lost
7-11.5%.
Turnover was very high ahead of F&O expiry tomorrow. Total traded turnover on exchanges stood at Rs
2,35,369.99 crore. This included Rs 15,797.22 crore from NSE cash segment, Rs 2,15,180.46 crore from
NSE
F&O
and
the
rest
of
Rs
4,392.31
crore
from
BSE
cash
segment.
About 1397 shares advanced while 1794 shares declined on the Bombay Stock Exchange. Nearly 262
shares were unchanged.
CBI has arrested at least eight officials on charges of taking bribes to grant
large corporate loans.
In a series of scams that have been plaguing the country, the latest one to be unearthed today is a
housing scam in which several public sector banks and a leading financial services firm have
been implicated.
The Central Bureau of Investigation, India's premier investigating body, has arrested at least
eight officials from banks and financial institutions on charges of taking bribes to grant
large corporate loans.
This included the CEO of LIC Housing Finance Corporation Ramachandran Nair and also
Rajesh Sharma, the CEO of Money Matters Financial Services, a financial services firm, on the
charges that they intermediated these loan. The others arrested include Central Bank of India
director Maninder Singh Johar, Punjab National Bank deputy general manager Venkoaba Gujjal,
Bank of India general manager RN Tayal, LIC Secy (Investment) Naresh Chopra.
The investigative agency also raided offices of the company in New Delhi, Mumbai, Kolkata,
Delhi and Jalandhar.
Five separate cases have been registered and investigations are on, CBI said in a press
conference, according to reports. It hasn't put up a figure to the size of the scam.
realisitic. "There were pressures on the PSU banks to give more and more loans to developers," explained Mr
Kapoor.
As a fall-out of the LIC Housing scam "there will be repercussions in terms of increased caution by banks in lending
to developers. Borrowing will become more expensive and the process involved in getting loans will get lengthier as
banks increase their vigilance levels. This means that we may see a marginal increase in the dependence on private
equity," said Anuj Puri, chairman and country head, Jones Lang LaSalle India.
Experts have been expecting a sharp fall in property rates since last year, when other industries were crippled in the
recession; but property rates did not come down significantly as developers continued to get funds from financial
institutions.
"In the period of the recession, when real estate prices had to come down significantly, why did the government ask
PSU banks to give loans to the real estate sector? Now we are suffering the effects of that decision. This year we
have crossed another peak in real estate rates because the government allowed further infusion of funds in the real
estate industry," Mr Kapoor said.
The CBI on Wednesday arrested CEO of LIC Housing Finance Ramachandran Nair and seven
others including three top officials of public sector banks whose executives gave loans to private
builders in exchange for bribes.
Apart from Nair, those arrested are Naresh K Chopra, Secretary (Investment), LIC, R N Tayal,
General Manager of Bank of India (Delhi), Maninder Singh Johar, Director (Chartered
Accountant) of Central Bank of India, Venkoba Gujjal and Deputy General Manager of Punjab
National Bank (Delhi). (Read: The CBI statement)
Rajesh Sharma, Chairman and Managing Director of Mumbai-based firm Money Matters Ltd
and two of its employees Suresh Gattani and Sanjay Sharma were among those arrested, CBI
said. (Also read: Loan scam: Banking, realty stocks tank)
The officials allegedly colluded with the firm to sanction large scale corporate loans, overriding
mandatory conditions for such approvals along with other irregularities. (Also read: Late selloff
hits stocks, Sensex falls 231 points)
"Officers of top management and middle management of various public sector banks and
financial institutions viz. Bank of India, Central Bank of India, Punjab National Bank, LIC and
LIC Housing Finance Ltd were receiving illegal gratifications from the private financial services
company who were acting as mediators and facilitators for corporate loans and other facilities
from financial institutions," CBI spokesman R K Gaur said in a statement.
A private financial services company, its CMD and other associates were allegedly bribing
senior officials of public sector banks and financial institutions for facilitating large scale
corporate loans. They were also gathering confidential business information from financial
institutions, said the CBI.
"These are clear cases of bribery and corruption by people working in the public sector. Land
prices in urban areas have sky-rocketed and developers need large sum to buy them. So bribing
officials for quick and huge loans is an easy option," said HDFC chairman Deepak Parekh.
The CBI has registered five separate cases in this regard and investigation is in progress, the
spokesman said.
Shares of LIC Housing dropped by Rs. 239, or 18.32 per cent, on Wednesday to close at Rs.
1,068.55.
This view of insurance has led to a number of people and religious communities disapproving of
insurance because of its similarities to gambling. Among those groups that avoid insurance are
the Amish and Muslim communities. What these people do instead is create a system of what is
known as social insurance. What this means is that if there is a disaster and someone suffers a
heavy loss, then the whole community will step forward and help them to deal with their loss and
rebuild. While this system is very simple, it has the potential to be just as effective a safety net as
insurance. However, it requires that the community actually does step forward and help those
who suffer from disasters. This means that it is more successful in small closed and closely knit
communities than in large modern societies.
Social insurance systems therefore are not always effective. Often the community that is
supposed to adopt it is not suitable. Also, in very large disasters the system can break down as a
small community will not be able to rebuild itself completely without outside assistance. This is
why larger modern insurance systems can be more robust. However, in extremely large disasters,
modern insurance systems can also run into difficulties. This is witnessed by the fact that it is
impossible to insure against certain risks such as floods and earthquakes. This is because the
damage would be simply on too large a scale for the insurance companies to cope with.
There are other ways in which insurance doesn't follow the gambling model. For instance
insurance companies seek to reduce the risk of the loss occurring constantly, for instance by
requiring the installation of fire alarms, or by reducing the loss if the insured against event does
occur, for example by providing rehabilitation to accident victims. Therefore insurance is like a
gamble in the reward and risk elements, but other elements are different.
Well, the world of business is focusing more on ethical behaviour. That is why subjects such
as ethical sourcing is beginning to take centre stage.
Therefore, to do business in the long-term, you should begin to take a closer look at how
you do business, how you treat your workers, what you pay your workers, and how safe
your work environment really is.
Unknown to the company, the head of team of the insurance department, Ferdinand
Maverick*, was collecting a percentage of the premium from the insurance company as
commission for retaining the services of the insurance company as opposed to changing
insurance providers. And for over a decade he collected and enjoyed this money without
scruples.
Things took a turn when his contact person in the insurance company left the business and
a lady took over managing the account. The new person, Mrs Bola Wiegand, in the
insurance company was unwilling to pay Maverick the commission he was use to collecting
from the previous contact person.
Maverick got annoyed and threatened to withdraw the deal from the insurance firm for
another firm. This was a big account and it was disastrous to lose it.
Consequently, Mrs Wiegand wrote a petition to the client company explaining the situation.
A panel was set up by the client company to investigate the allegation. Maverick claimed it
was his right to collect the brokerage commission.
The company didn't think it was ethical to do so. Therefore, he got summary dismissal.
What do you think? What does business ethics dictate in a situation like this? If you were in
Maverick's shoes, what would you have done?
Make no mistake about it.
It is wrong, it is unethical, to accept favours . . . financial or otherwise . . . to do your job the job you are already being paid to do by your company. Accepting those favours in the
name of it being a gift doesn't make it right either.
Be ethically sound. Make business ethics your watch word. Manage conflict of interest
situations with soundness of mind. It will save you a lot of embarrassment and a lot of
troubles.
persons or property. Even if these principles seem to be just a theory, the usage of
them in the daily activity represents premise of business success. The insurance
companies that will use practically the ethics principles will have important benefits
in the future, regarding their cota shre in the insurance field, but also towards theirs
perception for society.