The Housing Loan Scam

Human Resource Management Assignment

The Housing Loan Scam

The housing loan scam involving state-owned institutions and a private and listed Mumbai-headquartered company Money Matters Financial Services Ltd, has once again put independent directors under a cloud. At least three of the four independent directors in Money Matters, whose CMD and two senior executives were arrested by the Central Bureau of Investigation (CBI) today, are ex-bankers and chairpersons of financial institutions. In fact, RN Bhardwaj, non-executive independent director on the board of Money Matters was the chairman of LIC and LIC Housing Finance for more than a year till May 2005. He has served in LIC since 1968 till his retirement in 2005. Money Matters, the CBI has alleged, bribed senior officials in LIC and LIC Housing Finance while mediating and facilitating loans for builders and corporates from these institutions. Among those arrested include the chief executive of LIC Housing Finance. The other two are B Samal, who is the former chairman and managing director of state-owned Allahabad Bank and VP Singh, former CEO and chairman of state-owned financial institution IFCI Ltd. Given their understanding and clout in the financial services sector, experts wondered if they took their role of 'independent directors' seriously and asked the right questions. The fourth nonexecutive independent director in Money Matters is Sanjiv Kapoor, a chartered accountant, who has audited the books of the state-owned insurer LIC. While Samal, Singh and Bhardwaj are on the board of Money Matters since August 21, 2009, Kapoor was appointed as an independent director on July 10 this year. What is disturbing is the fact that some of these independent directors are also on the board of companies that CBI alleges have been favored with loans by these institutions. For instance, Samal and Bhardwaj are on the board

of JP Group companies which CBI has listed as one of the beneficiaries of loans. According to the CBI's remand application submitted in court, the list of companies allegedly favored with loans include Krishna Group (Rs 1,000 crore), OPG Group (Rs 330 crore), BGR Energy (Rs 20 crore), Suzlon (Rs 125 crore under process), Adani, JP Hydro, JSW Power, Pantaloon, Adalite, MTECH, Lavasa, DB Realty, Pashmina, Mantri Realty, Sigrun, Entertainment World, Indore City Treasures, JP Group, Gold Sukh Project, JP Group and MBD.

What LIC and the Banks say LIC Housing FINANCE claimed that all the loans were approved in compliance with relevant regulatory norms and all the loans in question are performing assets as on date. On its loan exposures with developers, LIC Housing Finance said that all procedures and due diligences consistent with board-approved guidelines have been adhered to in approving the loans, as has been followed in the past, by the competent authority. "All the loans are secured by the underlying assets to the full satisfaction of the approving authority. All the loans have been approved in compliance with relevant regulatory norms. As on date all the loans in question are performing assets," the company said. LIC Housing's builder loans constitute 11.34 per cent of the total loan portfolio as on October 31, 2010 and the gross non-performing assets (NPAs) stood at 0.08 per cent on the same date. "Gross NPAs on the individual loans stood at 0.84 per cent as on October 31, 2010. The provisioning cover on the NPAs stands at 71.79 per cent as on September 30," it said. The company said it would like "to assure its investors, customers and business associates that all necessary

steps would be taken to ensure that interests of various stakeholders would be fully protected". BANK OF INDIA: Despite making several calls, Bank of India officials were not available comments about the involvement of the bank's senior officials in the loan scam. CENTRAL BANK OF INDIA: The bank said none of its officers was involved in the scam. "Let me clear the fact that no officer from the Central Bank of India has either been arrested or even questioned as far as this episode is concerned," said S Sridhar, chairman and managing director. Sridhar said the person held for the graft is a government-appointed nominee on the board of the bank. "We do not know what amount was involved in the episode but there is no impact on the bank's asset quality due to this case. It is up to the government to take a call on the matter. As far as our responsibility is concerned, we have already reported the matter to the government." PUNJAB NATIONAL BANK: A PNB spokesperson said, "We knew that the matter was with CBI earlier. We will start looking into it once the CBI hands over the case to us." The arrested official was working in a large corporate branch of the bank six months ago and he then got transferred to PNB Financial Investment Services Ltd. "The CBI must have found the wrongdoings of the person when he was working with the large corporate branch that time," he said. The very top rung of some of India's public sector banks and financial institutions have been arrested by the CBI for allegedly sanctioning loans in return for bribes. A total of eight people have been arrested by the CBI. Among them: Ramchandran Nair, the Chief Executive Officer (CEO) of LIC Housing

Finance; R. N. Tayal , General Manager

of Bank of India; and Venkoba

Gujjal , Deputy General Manager of Punjab National Bank. "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. The private company involved is Money Matters, and three of its senior-most officials, including Chairman and Managing Director Rajesh Sharma have been arrested. The men at Money Matters allegedly acted middlemen, bribing officials at public sector banks to get loans worth crores sanctioned for private firms, mainly real estate companies. The bank officials are also accused of selling confidential information. During the day, the news of the raids and the arrests hit the stock prices of LIC Housing Finance and the Central Bank. ''These are cases of bribery. These are cases of corruption. Bribery by public officials, by people working in public sector organizations, and facilitating and sanctioning loans by taking money. And they have zeroed in on real-estate sector and certain developers who must have paid money to get loans sanctioned,'' said Deepak Parekh, the chairman of HDFC Bank. The arrests come after a CBI investigation that covered five cities and lasted over a year. Taped conversations referred to in the CBI's First Information Report (FIR) reveal incriminating details.

The CBI charges that Rajesh Sharma of Money Matters paid a 25-lakh bribe to RN Tayal at the Bank of India. In return, Tayal allegedly assured him of two loans worth 500 crores for two different companies. "If you can't get a 300-crore project passed. What is the use of you being in this position?" asks Sharma brazenly. In another case, Naresh Chopra of LIC Mumbai is accused of receiving 16 lakhs from Money Matters' Rajesh Sharma. Chopra allegedly traded confidential information on LIC investments into the Adani Group. After the arrests, LIC offered this statement. "All procedures and approved guidelines were adhered to in approving the loans. All loans have been secured by underlying assets to the satisfaction of approving authority. Steps will be taken to protect interests of various stakeholders."