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The housing loan scam

The housing loan scam has once again put independent directors under a cloud.

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 non-executive 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 favoured 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 favoured 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.

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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.ENS

First published on: 25-11-2010 at 01:42:25 am
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