Finance ministry, CBI play down bribe-for-loan scandal

The finance ministry and the Central Bureau of Investigation (CBI) were seen acting in sync with each other on Friday to arrest the stock market slide, triggered by the bribe-for-loan scandal busted on Wednesday.

In a damage-control exercise, while finance minister Pranab Mukherjee told reporters that the government had not spotted any sign of insider-trading in the housing loan racket so far, CBI climbed down from its earlier position to state that it was primarily a case of bribery and not a fraud case.

The 13-stock BSE Realty Index was down by 7.3% on Friday, joint denial notwithstanding.

Although Securities and Exchange Board of India (Sebi) has initiated an investigation into a possible insider trading in shares of more than 10 companies, Mukherjee stressed the government had not noticed any insider trading related to the home loan case.

And, CBI special director Balwinder Singh told the media in Mumbai, “It is not a fraud case as of today. Later, investigation may reveal that. But, as on today, it is primarily a case of bribery and corruption.”

This was a day after CBI sought explanation from a host of companies which had allegedly benefited from the loan scam.
Singh has now clarified that CBI would not interrogate any company before scrutinising the documents.

A source in the finance ministry pointed out that CBI had issued a statement on Thursday without going into the repercussions it could have on the market.

But after the market continued to nosedive through Thursday and Friday, CBI had to step in and revise its earlier statement. The source also called the market reaction “out of proportion”.

Meanwhile, lenders including LIC Housing Finance, Bank of India,  have started submitting reports to the government following directions given by the finance minister.

Saying that banks and financial institutions must ensure that their money is safe, Mukherjee said that he had already directed them to review their portfolios following the scam.

According to officials in the finance ministry, the total loan exposure of LIC and LIC Housing to realty projects is around Rs1,600 crore. Of this, their exposure to eight realty firms under the CBI scanner is just Rs400 crore.