India hit by another major corruption scandal

Friday, 26 November 2010 01:07 - - {{hitsCtrl.values.hits}}

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