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India hit by another major corruption scandal

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India hit by another major corruption scandal

By Paul de Bendern and Jui Chakravorty
NEW DELHI/MUMBAI | Thu Nov 25, 2010 4:12am EST

NEW DELHI/MUMBAI (Reuters) - India's reputation as a place to do business took another hit after the scandal-tainted government charged top public sector bankers of accepting bribes worth hundreds of millions of dollars. The federal Central Bureau of Investigation (CBI) on Wednesday arrested five officials from state-run listed companies, including the chief executive of LIC Housing Finance, for taking bribes to facilitate large corporate loans.

Three senior executives from a listed private company were also arrested on charges of handing out the bribes. [nSGE6AO05I] The banking scandal is one of the biggest to taint India, potentially harming the image of Asia's third-largest economy as destination for foreign investors, especially as it comes a few days after Prime Minister Manmohan Singh has had to defend his government in another graft scandal involving telecoms licenses sold at rock-bottom prices.

"The message is not good, both for the market also for the economy," said D.H. Pai Panandiker, head of private think tank RPG Foundation. "All these things create a very bad image about the country and it's kind of loss of faith in the system," he said. The scandals are unlikely to deter investors from India, one of the four key BRIC emerging markets in the world and a hot investment destination, analysts say. Investors are keen to tap into a country with a population of 1.2 billion.

Economic growth is forecast at 8.5 percent in 2010-11, and then between 9 and 10 percent every year after that, levels rivaled only by China. India was ranked 87th in Transparency International's 2010 ranking of nations based on the perceived level of corruption. India lies behind rival China, which is in 78th place. Shares in companies affected fell sharply since the scandal broke, underperforming the Mumbai stock index.

"The gratifications are huge, more than thousands of crores (hundreds of millions of dollars)," CBI Joint Director P. Kandaswamy told reporters on Wednesday. The Delhi government, however, sought to play down the scandal, saying it was an isolated incident. "It is an insignificant amount... it is individual personal greed, it is not systematic failure," R. Gopalan, secretary for financial services told NDTV broadcaster late on Wednesday.

Officials contacted by Reuters, and who asked to remain anonymous, said the government was not planning a special meetings to discuss the bribery case and would leave it to the CBI to handle. The CBI said those arrested included senior officials at state-run Central Bank of India, Punjab National Bank and Bank of India -- all major banks with operations across the country.

The executives in custody, and their institutions, have yet to comment on the charges. Life Insurance Corp of India (LIC), the parent company of LIC Housing Finance, was the only firm involved in the scandal to speak out, saying it was looking into the need to tighten internal operational systems, its chairman told CNBC TV18 on Thursday.

INDIA REELS FROM MORE SCANDALS

The CBI said the accused had received bribes from listed private broker Money Matters Financial Services, which acted as a "mediator and facilitator" of corporate loans and other facilities. The federal investigator declined to disclose details about the size of the loans, but they would have been significantly larger than the alleged bribes. Apart for Money Matters, the CBI did not disclose the names of the other companies that allegedly gave bribes.

This is the third big Indian corruption scandal in the past few months. India's government has been jolted by controversy over licenses and radio airwaves that a state auditor says were given out too cheaply, depriving the government of up to $39 billion in revenues. The telecoms minister was forced to resign and the prime minister has been asked to explain himself to the Supreme Court. Opposition parties want a full parliamentary probe and have blocked proceedings until the government relents.

Before that, the Commonwealth Games (CWG) that India had hosted were also riddled with corruption allegations. The government has resisted additional probes into the telecoms scandal, saying a CBI investigation is under way. Critics say the government fears it will be dragged into a long-running investigation ahead of state elections. The houses of parliament were again adjourned on Thursday. That has weakened the government's ability to move key economic measures and delayed legislation, although the government is not at risk of collapsing.

(Additional reporting by Mumbai and Delhi bureau; Writing by Paul de Bendern; Editing by Miral Fahmy)

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