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LIC + PSU Banks Financing Realtors Scam

Thursday, November 25, 2010

The CBI has arrested officials of several financial institutions ranging from CEO to deputy general managers for allegedly accepting bribes from a debt syndicate company, "Money Matters", for facilitating loans to companies across many industries including Indian property developers.

Details of those arrested: Personnel from LIC Housing Finance (CEO), LIC (Secretary, Investments), BOI (GM), Central Bank (Independent Director), PNB (DGM) and 3 people from Money Matters (CMD + 2 others) were arrested.

Pro-forma analysis of commercial real estate books indicates that were half these books to be written off (an extreme outcome, in our view), the impact on NAV would be an average of 16% for our PSU bank universe but 72% for LICHF. On the other hand, were earnings/book values to remain unaffected but multiples reverted to their 5-year averages, our scenario analysis indicates anything up to a 20% impact on the share prices of our PSU bank universe from current levels.

We believe these investigations will have negative implications on the companies involved and will remain an overhang, both from financial impact as well as sentiment perspective.

Has the RBI Woken up yet to take to task all the il-legal money launderers ? Land / Real Estate is the Worst Asset Class for Investment. Read on How Government Sponsors Black Money in Land Dealings.

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