The housing finance scam that has sent shock waves across the banking,real estate and the stock markets for the second day is assuming huge proportions. Even the finance minister has asked banks and financial institutions to look into their exposures to companies involved in the fraud. A report by Edelweiss shows that the LIC Housing Finance Limiteds loan to real estate companies grew from Rs 2,426 crore in FY 2009 to Rs 4,132 crore in FY 2010,which was about 11% of the total loan book of the company. The company had given a loan of Rs 188 crore or around 0.4% of its loan book to DB Realty syndicated through Money Matters,a broking company that helps builders to raise money from financial institutions,which is alleged to have bribed bankers to get loans for a number of companies. The scam will jeopardise LIC Housing Finances growth prospects and raises corporate governance issues as it is the only company where the CEO has been charged by the CBI. Similarly,Punjab National Banks exposure to real estate companies went up from Rs 14,689 crore in FY 2009 to Rs 15,257 crore in FY 2010 and accounted for about 8.2% of the banks total loan book. In contrast,the real estate exposure of Bank of India and Central Bank of India declined. On Wednesday the CBI arrested eight bank officials including the CEO of LIC Housing Finance,LIC Secretary (investments),Central Bank director,Bank of India GM and Delhi DGM of PNB. The scam pulled down the 30-share Sensex by 162 points and the banking and real estate indices took a big hit. Though the countrys largest lender,SBI,has said that the housing finance racket,involving several senior bankers,will not hit disbursements to the real estate sector and there was no need for alarm,the crackdown by the CBI will ensure that loan originations,approvals and credit appraisal processes in the banking system will be strengthened. Analysts say that real estate borrowing could become dearer and banks would become extra-cautious while lending to real estate developers. They say the process involved in getting the loan will become lengthier as banks will raise their vigilance levels. They say some of the real estate IPOs that are lined up will get postponed and some big projects might get delayed as they might face cash crunch.
