Companies & Sectors
LIC Housing scam draws attention to artificial real estate valuations and govt bank support to the sector

Real estate valuations are opaque and the government had openly supported the sector after the financial crisis. The current real estate scam is the outcome of these two factors, say experts

The arrest of eight officials from public sector banks and financial companies for allegedly taking bribes to sanction loans to realty firms, has drawn attention to one of the key factors that has led to this real estate scam: Opaque valuation methods that allow artificially high valuation of properties, making it possible to go for such improper loans.

"It's not just a matter of involvement of public sector banks or mediators; the system of real estate valuations is the crux of the scam," said Pankaj Kapoor, CEO & founder of Liases Foras, a real estate rating and research firm. "I think the Central Bureau of Investigation (CBI) got involved in the matter because there could be risky securities on which loans have been given. For instance, a property which should have a value of Rs150 crore is being projected as worth Rs500 crore. That becomes the security on which a bank gives loans and is where the risk comes in," Mr Kapoor told Moneylife. The real estate sector is the least transparent of the large business sectors. Developers are always keen to get huge finances on artificial valuations on their properties as the industry is unregulated.

Officers in the top management and middle management of Bank of India (BoI), Central Bank of India (CBoI), Punjab National Bank (PNB), Life Insurance Corporation of India (LIC) and LIC Housing Finance were receiving illegal gratification through a private financial services company, acting as mediator and facilitator for corporate loans and other facilities from these institutions, the CBI said in a statement.

"As of now, the name of only one arranger (of the loans) has come out, but I think there would be small and big arrangers in the industry," Mr Kapoor said.

Being an unorganised and unregulated industry, not just big but small developers too in major cities try to value property rates to their advantage. It is left to diligent banking officials to give loans against valuations that are 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.




7 years ago

Real Estate Prices are notional can be anything. More than 50% black money is involved in financing the project. With the availability of easy fonds builders & investors are able to maintain unviable high prices. I have seen the small brokers do liasion between PSU /Private Banks & loan seekers and take hefty commission in arranging loans. They may be passing high bribe to bank officials. Present Govt. should work for abolishing the speculation in real estate prices .


7 years ago

Evry news these days is sounding so negative, include "barkhagate" and so many scams since 2009 satyam scam, therefore, I have a plea. Atleast, those of us who are concerned about the negativity, should post not just the news but end it with some suggestion/idea/solution. We should all convert to problem solvers rather than complainers. Sure, we may not stand in the next election, but there would be ways to conquer. Please also post some more positive articles along with the negetive ones. Thanks



In Reply to Vikas 7 years ago

dear Mr Vikas,
i agree to your point that we should become problem solvers and not complainers-


7 years ago

Real estate prices have gone up to the sky.This is because of availability of money for the buyers through housing loans without proper controls Maximum loan should be with in 75% of teh property and there must be ceiling of prices according tothe place and situation of the property rther than accepting the inflated price quoted by the builders If supply of loan and acceptance of price is limited prices will definitely reduced by 40% from current level

Shibaji Dash

7 years ago

With a virtually perennial dysfunctional legislature. the country is bereft of any effective forum to press on the Govt the most pertinent question raised in the last para of the commentary of Moneylife Digital team.Thank you Moneylife.

Sibal launches MNP from Haryana

Rohtak (Haryana): India today ushered in Mobile Number Portability (MNP) that will allow cellphone users to switch operators without changing numbers, with telecom minister Kapil Sibal launching the service in Haryana, reports PTI.

The rest of India would get to use MNP from 20th January, next year.

The consumer friendly service was mooted over two years ago and was planned to be implemented by end of 2009. However, the implementation had to be deferred several times owing to reasons ranging from lack of preparedness of operators to delay in appointment of an agency to oversee MNP execution.

MNP would bring in a much-required change in the quality of services as well as attitude of the operators towards redressal of grievances in order to retain subscribers.

As per the eligibility criteria, there should not be any outstanding payment by way of pending bills before customers can apply for availing of MNP services, the Department of Telecom (DoT) said.

It also said that the mobile number sought to be ported should not be sub-judice and also there should not be pending request for change of ownership of the mobile number.

The DoT has claimed that the entire process of switching operators would take a maximum of seven days and subscribers may face disruption of services for about two hours during that period.

The one-time charge that needs to be paid by subscribers would depend on operator-to-operator, but the charge cannot exceed Rs19.

Any mobile subscriber must have used the number for at least 90 days before availing of MNP service.

India has more than 700 million subscribers across the country with nearly 10 operators in each circle.


India Infoline put out a ‘buy’ on Money Matters a few days before the scam was broken by Moneylife; FIIs are livid. Stock down 15%

India Infoline, which arranged to transfer Rs446 crores from four hapless foreign institutional investors (FIIs) to Money Matters Financial Service, clearly did not do the due diligence on the company while pocketing fat fees

Yesterday, Moneylife was the first to report that the Central Bureau of Investigation (CBI) was questioning Money Matters officials in a multi-crore scam (Read: 'Money Matters Financial raided by Central Bureau of Investigation' at We pointed out how Money Matters had managed to raise over Rs4,460 million from four foreign institutional investors (Morgan Stanley, Wellington, Fidelity and GMO) just a month ago, through a Qualified Institutional Placement (QIP) that was brokered by India Infoline (IIFL).

We gather that investors are incensed that IIFL did a shoddy job of the due diligence while making the QIP. FIIs are privately accusing IIFL of ignoring malpractices by Money Matters and pocketing merchant banking fees.

However, IIFL is arguing that it was not aware about how Money Matters really functioned, or the scam in the company. But this rings hollow. Moneylife has come across an IIFL report on Money Matters that was issued just four days before the scam was revealed. The report is a very positive one.

We also gather that IIFL is now arguing that it hasn't been able to communicate with the four QIP investors since the scam broke. One can be pretty sure that its phones are ringing off the hook with angry clients bent on discarding the broker from their empanelments. Indeed, angry FIIs have sold the stock heavily today. It was down 14.83% on the National Stock Exchange.

This raises the question as to why merchant bankers should be allowed to collect fat fees for issues if this is the level of due diligence they offer? And why such a poor job on the due diligence should not be punished with the imposition of standard stringent fines, and suspending such entities from the market for some years at least?

It is very clear that either IIFL did not do the due diligence which it claimed it had done, or it did it so shoddily that it was not aware of how the company really functioned. For, it helped raise $100 million for Money Matters through a QIP concluded on 20th October.  Just a month later (in a report to institutional clients dated 22nd November), IIFL encouraged clients to buy the stock for a 24% upside. The IIFL report says: "Money Matters Financial Services (MOMF) is a niche player in loan syndication with strong origination and distribution capabilities, as evidenced by its volume of throughput and client roster. We believe the company is well-positioned to capitalise on strong demand for syndication over the medium-term, arising from large investment needs of the corporate sector, while its lending operations provide an added boost to earnings. We expect MOMF to deliver EPS CAGR of 33% over FY10-FY13, driven by a rise in syndication volumes, stable fee level, and high spread from down-selling."

The report contains a large graph detailing the process that Money Matters follows for debt syndication and it claims that the "internal process reveals a complex web of processes, requiring client handholding by the syndicator at every step of the process."
The IIFL report says that MOMF placed Rs440 billion of loan/debt during FY09-FY10 across various sectors. The company's debt syndication activity is principally concentrated in capital-intensive industries such as infrastructure, power, real estate and financial services. MOMF derived 88% of its consolidated revenue in FY10 from loan and debt syndication and loan restructuring activities and the rest from securities trading, lending and equity and debt brokerage.

MOMF's key competitors include banks with strong debt syndication capabilities, primarily SBI Caps, Axis Bank and YES Bank. The company has a well-established team of over 100 professionals for origination and placement activities, with strong corporate and institutional relationships. On the other hand, the company has seen considerable attrition at the senior management level during FY10.

MOMF had 9 million shares outstanding end-FY08. In FY09, the company undertook a rights issue at par, offering two shares for each share held, raising Rs180 million. In addition, stockholders were given one warrant for each new share, aggregating to 18 million warrants. The warrants were exercisable at a 20% discount to market price up to September 2010. Subsequently, the subscription period was extended to March 2014.

The management gave up its share of warrants in the third quarter of FY10, so currently there are 3.7 million warrants outstanding. MOMF undertook the QIP in Q3FY10 and raised Rs4,450 million, which it proposes to use for lending purposes. MOMF plans to capitalise on its client knowledge and flexibility vis-à-vis large banks, to provide loans to client where a regulatory arbitrage opportunity exists. The company eventually plans to sell down these loans to banks, to capture the spread.



Abhay Jamdar

7 years ago

As Merchant bankers, i think IIFL would only have access to things like audited statements etc. and not anything like 'were these guys giving out bribes to people'


7 years ago

It is also very disappointing that Sundaram Mutual Fund has invested in the QIP. Being in India, their Fund Manager also did a shoddy job of ascertaining about Money Matters. Investors like me who have invested our life savings in Sundaram Midcap Fund feel cheated and swindled by these Fund Managers.
I wish SEBI under Mr. Bhave will act swiftly against Sundaram Mutual Fund and bring criminal charges against them.

Ravindra Shetye

7 years ago

I am quite sure that the fees were collected from both parties, from what the Company has done in the realty market.


7 years ago

It happened in the Bofors scam, in the CWG scam, the 2G scam, and now in the bank loan scam. Our investigators have the uncanny knack of locking the stable after the horse has bolted!! Now the media will milk it to encash TRP points. All this washing of dirty linen in the public is not doing India Inc. any good globally!!

sanjay doshi

7 years ago

Wonder what must have been the quantum of fees collected ?


7 years ago

Is there any mkt regulator? the existing one is only bother abt mutual fund regulations.

R Balakrishnan

7 years ago

My suspicion is that the FII's as well IIFL knew exactly what the issuer was doing. In private circles, it was clear that here is a business model that is great for India. Have bank chairmen in pocket. Have inside track on loan sanctions. Delay/hold up sanctions and collect speed money. All this was surely known.
Now that it has blown up, it is easy to pretend to be holy. If you have been in the industry for as long as I have been, it was obvious. And I am sure that in each of the FII investor, there would be an Indian origin fund manager who took the call. Even the exit price would have been 'guaranteed'.

k a prasanna

7 years ago

Investment and merchant bankers are not interested in due diligence. They are interested in only their hefty fees. IIFL is no exception. Kotak Mahindra, Enam, JM Financials are also of the same pack. Look at the IPOs managed by these bankers and their current market price. Their track record is pathetic to say the least.


B Acharya

In Reply to k a prasanna 7 years ago

Investment and merchant bankers are involved in doing their own personal due diligence of how to create their personal wealth, by misguiding the investors and general public. What is SEBI’s role? How they fix the accountability on the promoters and the investment bankers? Bribarant India……. Jinda Bad


7 years ago

Why are you claiming that the scam was broken by ML ? It was just article published on the same day before the news came out.


Ravindra Shetye

In Reply to Kannan 7 years ago

Mr. Kannan,
surprising that you are quiet about the contents of the article.

B Arya

In Reply to Kannan 7 years ago

Dear Mr. Kannan, Leaving aside the important national topic, you are diverting the attention of the people. Are you one among the beneficiaries of Money Matter Financial Services or India Infoline deals ?

Yes, I agree Money Life was the first one to air this article, although the email to individual ids comes in the evening, but if you go to the you can see his article.

You are requested to give your valuable inputs and guide the investors in right directions, as all the scams will be exposed today or tomorrow and hence we request you to be honest and sincere in all your personal and official dealing.

Wish you good luck

Debashis Basu

In Reply to Kannan 7 years ago

Check our time stamp
I should know. I wrote it myself and before uploading checked if anyone had reported it. No one had


In Reply to Debashis Basu 7 years ago

All - I am not the one on the other side. I have very high regards for the whole ML team.

When used the sentence "broken by moneylife"; it felt like they are also doing the same like other morons in "TimesNow" or "NDTV" etc.

Breaking a news early is important but exposing deserves a better credit.

I didn't write to hurt anyone; just a passing comment. Take it light!!!


In Reply to Kannan 7 years ago

Mr Kannan,
Thanks for your comments.
Yes, it is true. Moneylife is not in the business of 'breaking the news'. Instead, what we wrote was the core of this latest scam. While everyone was busy covering CBI raids and arrests of bank and LIC HF officials, we wrote about the core factor of this scam.

Ravindra Shetye

In Reply to Kannan 7 years ago

Mr. Kannan is making a big issue of no consequence, not touching the main issue, wasting his as well as others' time.


7 years ago

Axis Bank is a fat balloon with an overexposure to Infrastructure projects including that of HCL, Lavasa, Suzlon, Alok Ind, Mundra Port and few other big names in construction industry. Look at its recent deal with ENAM

CBI should conduct the inquiry against the Ex DMD and other senior officials including the present DMD, Executive Directors, Board of Directors, and President - Risk for their vested interest in financing to this project and holding disproportionate wealth they have accumulated in their family members name.

Money Matters Financial Directors including other officials Mr Pawan Bansal ( ex employee of Axis Bank as reported in today economic times ) and company accounts are being operated through Axis Bank

CBI Economic Offence Wing is already doing the inquiry in to similar type of fraud in Priority sector lending of 150 crores at Bhopal and Jabalpur and also at other major centers.

They were also involved in multi crore contract farming fraud similar to LICHF i.e landing on a fake KYC documents without the existence of that person. The bank has 1200 plus crores of exposure to Microfinance Companies which is deteriorating its asset quality.

The senior functionaries of the banks are putting up papers or they are being moved to other non performing departments. One side the bank is giving the suspension / termination letters to employees and other side they are accepting the resignation letters from those suspended senior employees and giving them relieving letter. Its an eyewash to the general public, and our role is to educate the investors and protect their interest. Its upto you to take a call.

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