India's Fragile Reputation for Probity Takes a Hit

Corruption scandals have been plaguing the Government in Delhi, with the latest one involving an alleged bribes-for-loans scam that has sent bank and property shares plummeting in Mumbai. Eight senior executives, including five from large state-owned banks, were arrested this week, and the Central Bureau of Investigation expanded its investigation to include 21 companies. The scandal has further tarnished India's reputation for probity, already on the back foot after a string of high-profile corruption scandals, including the 2G mobile phone licence scandal and the Commonwealth Games scandal.

Key Takeaways:

• Eight senior executives, including five from large state-owned banks, were arrested in the alleged bribes-for-loans scam.
• The Central Bureau of Investigation is expanding its investigation to include 21 companies.
• The arrested executives are alleged to have taken bribes from Money Matters Financial Services, a listed private broker, which acted as a "mediator and facilitator" of corporate loans and other facilities.
• The scandal has sent bank and property shares plummeting in Mumbai, with Central Bank of India shares falling 10% and Punjab National Bank shares losing 3%.
• The arrested executives are expected to remain in custody until Monday.
• Pranab Mukherjee, the Indian Finance Minister, has asked all banks, financial institutions, and insurance houses to examine their exposures to the companies named by the bureau.
• The scandal comes at a sensitive time for the Government, already on the back foot after a string of corruption scandals, including the 2G mobile phone licence scandal and the Commonwealth Games scandal.
• The alleged scam involves Money Matters Financial Services, which is alleged to have acted as a "mediator and facilitator" of corporate loans and other facilities.
• The Indian Parliament has been paralysed for the past fortnight as Opposition MPs demand a cross-party inquiry into an alleged ¢25 billion scam involving the distribution of 2G mobile phone licenses.

Statistics:

• 8 senior executives arrested in the alleged bribes-for-loans scam
• 21 companies included in the expanded investigation by the Central Bureau of Investigation
• 10% drop in Central Bank of India shares
• 3% loss in Punjab National Bank shares
• $462 billion estimated to have been taken out of India by private companies trying to evade tax since 1948
• 72% of India's black market economy consists of illegal cash outflows
• $1 billion estimated value of the scam at Satyam Computer Services in 2009

Sources:

• Reuters
• Global Financial Integrity
• Financial Action Task Force
• Transparency International
• The Economic Times (Mumbai)