Builders may have benefited from fake home loans of LIC Housing Finance and banks   

November 24, 2010

LIC Housing Finance is suspected to have given fake loans to individuals which landed in a the accounts of a few builders

Following the raids by the Central Bureau of Investigation (CBI) on Money Matters Financial since last night, news that was broken by this website early today, the CBI conducted raids on LIC Housing Finance (LICHF) and three banks during the day.

The CBI is investigating whether LICHF and the banks had given out fake housing loans. Moneylife learns that officials of LICHF, Bank of India, Central Bank of India and Punjab National Bank had given out housing loans to a few hundred individuals, who were dummy borrowers. These borrowers existed only paper and were propped up by a few builders. The money was then transferred from the accounts of these individuals to these builders. It also appears that LICHF was charging a high rate of interest for these fake loans which was reflected in higher profits.

Driven by high profits over the last few quarters, the LIC Housing Finance stock has been a spectacular performer over the last 20 months. From a low of Rs178 at the end of March 2009, the stock had hit Rs1,496 on 29th September this year, a rally of over 1000%. Over the same period, market leader Housing Development Finance Corporation (HDFC) rose from a low of Rs223 to a high of Rs780, a gain of 350%.

As rumours of the LIC HF scam surfaced, the stock took a big battering. By the end of the day, it was down 18% and there were no buyers for the stock. Since the Moneylife report early morning, the Money Matters Financial stock too was sold heavily during the day and the stock was locked in the lower circuit. It appears that the cases of Money Matters and LIC HF and the banks are linked. CBI suspects that Money Matters was arranging these deals between the banks and the builders.

— Moneylife Digital Team