LIC Housing Finance and banks are suspected to have given fake loans to individuals which landed in the accounts of a few builders. The deals were supposed to have been arranged by FII-funded Money Matters Financial Services
Following the raids by the Central Bureau of Investigation (CBI) on Money Matters Financial since last night, news that was broken by this website early today (Money Matters Financial raided by Central Bureau of Investigation), the CBI conducted raids on LIC Housing Finance (LICHF) and three banks during the day.
The CBI said it busted out a racket where a private financial services company, its chairman and managing director (CMD) and other associates were 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.
Officers of top management and middle management of various public sector banks and financial institutions, Bank of India (BoI), Central Bank of India (CBoI), Punjab National Bank (PNB), Life Insurance Corp of India (LIC) and LICHF 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, the CBI said in a release.
The investigation agency said it arrested R Ramchandran Nair, chief executive-LICHF, Naresh Chopra, investment secretary-LIC, RN Tayal, general manager-BoI, Maninder Singh Johar, director-CBoI, Venkoba Gujjal, deputy general manager-PNB as well as Rajesh Sharma, CMD-Money Matters and Sanjay Sharma and Suresh Dattani, both employees of Money Matters. All the eight arrester persons are remanded to custody till 29th November, CBI said.
Moneylife learns that officials of LICHF, BoI, CBoI and PNB had given out housing loans to a few hundred individuals, who were dummy borrowers. These borrowers existed only paper and were propped up by a few builders. The money was then transferred from the accounts of these individuals to these builders. It also appears that LICHF was charging a high rate of interest for these fake loans which was reflected in higher profits.
Driven by high profits over the last few quarters, the LIC Housing Finance stock has been a spectacular performer over the last 20 months. From a low of Rs178 at the end of March 2009, the stock had hit Rs1,496 on 29th September this year, a rally of over 1000%. Over the same period, market leader Housing Development Finance Corporation (HDFC) rose from a low of Rs223 to a high of Rs780, a gain of 350%.
As rumours of the LIC HF scam surfaced, the stock took a big battering. By the end of the day, it was down 18% and there were no buyers for the stock. Since the Moneylife report early morning, the Money Matters Financial stock too was sold heavily during the day and the stock was locked in the lower circuit. It appears that the cases of Money Matters and LIC HF and the banks are linked. CBI suspects that Money Matters was arranging these deals between the banks and the builders. According to our sources, bank officials and others were being gifted 2 kilograms of gold this Diwali.
It may be recalled that less than two months ago, Money Matters raised more than Rs400 crores foreign institutional investors, a deal arranged by India Infoline.
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The market opened on a strong note this morning but sideways trading, coupled with across-the-board selling, dragged the indices lower at the end of the session.
The local market opened higher this morning, brushing aside concerns about tensions in the Korean peninsula and the global economy. Jittery trade saw the indices dipping into the red for a brief period in morning trade. They soon bounced back to touch the day's highs but range-bound trading led to a sharp decline towards the close.
Finally, the Sensex closed 231.99 points (1.18%) lower at 19,460. The bellwether index touched a high of 19,835 and a low of 19,376, intraday. The Nifty was down 69 points or 1.16% at 5,865. The index oscillated between a high-low of 5,976 and a low of 5,833 during the session.
The market breadth was negative today. The Sensex had 25 declining stocks against five gainers while the Nifty settled with 44 stocks in the green and six gainers. Among the broader indices, the BSE Mid-cap index lost 1.11% while the BSE Small-cap index shed 0.56%.
The top gainers in the 30-share Sensex list were Mahindra & Mahindra (up 3.23%), Bharti Airtel (up 0.76%), Tata Steel (up 0.54%), ITC (up 0.41%) and Tata Motors (up 0.32%). The losers were led by State Bank of India (down 3.34%), DLF (down 3%), BHEL (down 2.74%), ICICI Bank (down 2.73%) and HDFC Bank (down 2.67%).
BSE Fast Moving Consumer Goods (up 0.24%) and BSE Auto (up 0.05%) were the only gainers in the sectoral space today. The sectoral losers included BSE Bankex (down 2.94%), BSE Realty (down 2.88%), BSE PSU (down 1.84%), BSE Capital Goods (down 1.21%) and BSE IT (down1.06%).
In a move that could make it difficult for corporate entities to set up stock exchanges, a Securities and Exchange Board of India (SEBI) committee on Tuesday recommended that only banks and public financial institutions could be anchor investors in bourses and stopping them from listing or making huge profits.
According to industry sources, the recommendations would make things difficult for FTIL group-founded new bourse MCX-SX, which is allowed to trade only in currency futures, and its plea for trading in equity and other segments has already been rejected by SEBI.
Markets in Asia ended mixed on profit-booking, reacting to tension between the two Koreas, and on fears that more members of the European Union might face debt issues. The Chinese market ended higher as investors there resorted to bottom fishing.
The Shanghai Composite jumped 1.12%, the Hang Seng gained 0.56%, the KLSE Composite was up 0.07%, and the Straits Times rose 0.34%. On the other hand, the Jakarta Composite fell 0.53%, the Nikkei 225 was down 0.84%, the Seoul Composite lost 0.15% and the Taiwan Weighted declined 0.38%.
The US markets closed sharply lower on Tuesday following tensions after North Korea fired artillery shells at a South Korean island. In economic news, the Federal Reserve on Tuesday revised its economic growth forecasts downwards for next year. Besides, a fall in sales of existing homes in October made investors wary of the pace of economic growth in the world's largest economy.
The Dow tumbled 142.21 points (1.27%) to 11,036. The S&P 500 shed 17.11 points (1.43%) to 1,180. The Nasdaq declined 37.07 points (1.46%) to 2,495.
Inflows from domestic institutional investors were offset by outflows by foreign institutional investors on Tuesday. The latter pumped in Rs1,503 crore in the equities segment while the latter pulled out funds worth Rs1,493 crore yesterday.
Tata Power (down 0.73%) plans to invest Rs850 crore till FY12 to beef up generation, transmission and distribution, a senior company official told reporters.
The company will invest Rs850 crore over three years (FY10 till FY12) to enhance its generation, transmission and distribution capabilities, said Tata Power's executive director-operations, S Padmanabhan.
Yes Bank (down 2.15%) and Shinsei Bank of Japan today signed an agreement to advise companies on cross-border deals between the two nations. The alliance will play an active role towards further augmenting investment flows into the Indo-Japanese corridor, a Yes Bank statement said.
It added the tie-up will enable both banks to leverage their combined expertise, strong local knowledge and excellent corporate relationships to jointly pursue M&As, JVs and merchant banking opportunities.
Punj Lloyd (down 1.16%) has bagged three contracts worth Rs 1595 crore. The first one is from Oil Corporation which is worth Rs 1123 crore. The second order is from Harouge Oil operations in Libya worth Rs 288 crore and the third order worth Rs 184 crore is from West Bengal Medical Service Corporation, a wholly owned undertaking of the government of the West Bengal.