The Reserve Bank of India (RBI) will begin examining the modus operandi of the alleged bribes-for-loans allegations made by the Central Bureau of Investigation (CBI) against officials of three banks, Life Insurance Corporation of India (LIC), and a finance company. The National Housing Bank (NHB) discourages housing finance companies from excessive exposures to builders and ensures that there are sufficient checks in place.

The CBI said officials of the private finance company were bribing senior officials of public sector banks and financial institutions for facilitating large scale corporate loans.

RBI would alert banks to exercise caution on their exposure to the real estate sector according to the process usually followed, sources said.

“The property sector is a sensitive sector and is always under the RBI scanner due to volatile nature of prices of realty assets,’’ a RBI official said, declining to be identified.

The central bank carries out offsite investigation to keep track of sectoral exposures, but in normal course, it does not get into the details about exposure to specific entity, according to the official.

The CBI might take the help of other agencies, including RBI, based on the nature of leads the investigation yielded, an official of CBI said.

NHB Chairman R V Verma said it would have to see the details of the LIC Housing Finance scandal before deciding on the future course of action.

“This does not seem to be a systemic issue,’’ Verma said. “There are regulatory checks and balances in place and NHB has discouraged excessive exposures to builders. The housing finance companies have to do due diligence in each case of loan to builders.”

More than 80 per cent of the loan portfolio of housing finance companies consists of home loans. Their direct exposure to developers and builders is usually small as a share of the total asset portfolio.

The central bank has been telling banks to exercise caution on over-exposure to the property sector. The central bank in its last monetary policy on November 2 set the loan–to-value on housing loans at 80 per cent of the value of the property being funded by any lender. It also raised the risk weights on residential housing loans of more than Rs 75 lakh to 125 per cent from 100 per cent.

The RBI increased the standard asset provisioning for all so-called ‘teaser loans’ to two per cent from 0.4 per cent. While RBI didn’t see a bubble in the housing sector, it did see a price build-up, Governor D Subbarao said on November 2.

“Home prices in most metros have not only reached pre-crisis levels, but have even crossed that. We wanted to ensure that this is not credit-driven. There are also some loose practices developing such as 90/10 (loans up to 90 per cent of property value). We wanted to curb that. There is no bubble. We just wanted to rein in the housing sector’s credit growth,” the governor had said.

A detailed investigation by the RBI is conducted only when there is a prima facie case of malpractice.

Among the bank executives arrested following nationwide raids included LIC Housing Finance Chief Executive Officer R R Nair, LIC Secretary (investments) Naresh K Chopra, Bank of India General Manager R N Tayal, Central Bank of India Director (chartered accountant) Maninder Singh Johar, and Punjab National Bank Deputy General Manager Venkoba Gujjal.

The CBI also arrested Money Matters Financial Services Chairman and Managing Director Rajesh Sharma and two other executives, Suresh Gattani and Sanjay Sharma.

A CBI official said prima facie evidence shows the bank bribery case could involve “a lot of crores (of rupees)”. The CBI declined to give the extent of the scandal.


* R R Nair, CEO LIC Housing Finance

Purchased a flat in Mumbai at a discounted price and demanded gratification from Money Matters CMD Rajesh Sharma who delivered Rs 45 lakh on November 16, 2009. In return, Nair showed undue favour related to Sharma’s real estate clients, including D B Realty and Mantri Realty

* Naresh Kumar Chopra, Secretary (Investment), LIC

Received Rs 16 lakh in return for providing insider information on investment matters of LIC related to Adani, Jaypee Hydro, JSW Power, Religare, D B Relaty and Pantaloon. He has also been arranging investments by LIC  in violation of guidelines

* R N Tayal, Zonal Manager, Bank of India, Chennai

Received gratification of Rs 25 lakh from MMFSL and in return had assured him of help in the matter of Ashapura Minechem. Also, he assured Rajesh Sharma to associate him in Rs 500-crore power projects of BGR Energy and OPG.

* M S Johar, Director, Central Bank of India

Demanded Rs 37.5 lakh, but received Rs 30 lakh from MMFSL for “undue favour” to Lavasa to clear a loan proposal. Had also promised sanctioning of proposals of Suzlon, Jaypee Group and the Krishna Group

* Venkoba Gujjal, DGM, Punjab National Bank, New Delhi

Demanded Rs 20 lakh, but got Rs 7.5 lakh for facilitating loan of Rs 50 crore for one of MMFSL’s client companies

* MMFSL Chairman Rajesh Sharma, and senior executives, Suresh Gattani and Sanjay Sharma

Bribed the five-above mentioned persons in lieu of undue favours

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