Bankers all around the world are icons of integrity. "To bank on" means to have complete trust in someone in money matters but this has been falsified in India where bankers are writing history in the vast magnitude of corruption. India's reputation as a place to do business took another hit after the scandal-tainted government charged top public sector bankers with accepting bribes worth hundreds of millions of dollars. Reuters has reported that the 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. This has led Indian Finance Minister Pranab Mukherjee to ask all banks, financial institutions and insurance firms to look into their exposures to firms named by federal investigators in the case.
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. "Anyone who has been an investor in India, has to be familiar with issues like these," Vikas Pershad, Chief Executive of Veda Investments in Chicago. "So, if someone is pulling out of India based on the recent events, he or she is really mistaken. The long-term growth story is intact."
Investors are keen to tap into a country with a young and fast-urbanizing 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 arrests are the culmination of a year-long investigation across five cities in India, the CBI said. The Delhi government, however, sought to play down the scandal, saying it was an isolated incident.
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 have yet to comment on the charges, but the companies involved have all denied any knowledge of wrongdoing and said they would review their internal regulations.
This is the fourth big Indian corruption scandal to blow up involving the Congress party in the past month and a half. India's government has been jolted by controversy over licenses and radio airwaves that a state auditor says were given out too cheaply, and often to companies not eligible , 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 that India hosted were also riddled with corruption allegations. A large housing scam has also rocked the government where party officials, bureaucrats and military personnel are accused of taking land belonging to war veterans and building luxury flats. The government has resisted additional probes into the telecoms scandal, saying a CBI investigation is under way.
That has weakened the government's ability to move key economic measures and delayed legislation in areas such as banking and mining , although the government is not at risk of collapsing.