Analysts are expecting a knee-jerk stock market reaction to the CBI investigations into fraudulent loan disbursals. Many stocks might hit the lower circuit, and stocks from the banking and realty sectors which are a part of the F&O segment could decline further, they say. The issue is not as simple as it looks, and with senior management personnel of LIC, Bank of India, PNB and Central bank of India involved, how many more scams the markets can discount remains to be seen, said analysts.
“It is a national disaster,” said Dr Nirakar Pradhan, CIO, Future Generali Life Insurance. “Realty and banking stocks will open weak and stay weak and this could hamper the government's disinvestment programme, in case the magnitude of these developments is significantly large,” he added.
Analysts feel that this episode could hamper the overall credit growth, as problems related to microfinance also started in the same way.
The RBI had already increased the margin requirement for home loans to 20 per cent to check banks' exposure to real estate. One can expect the apex bank to bring additional checks and balances in place for loan disbursal.
“The RBI norms are already so tight and we see that some people have managed to get around that too,” said Mr Abbas Merchant, Senior AVP, Jaypee Capital Services. “In case norms are tightened it would be difficult for real estate companies to meet their loan obligations with just operational cash flows in the absence of a refinancing mechanism,” said Mr K. Ramanathan, CIO, Single Manager Investments at ING Investment Management.
Market experts say nothing much can be done if an independent director accepts illegal gratification. Companies are already finding it hard to find good independent directors. If there are clear cut selection norms for independent directors then very few would dare to take it up. “It is very difficult to fathom the integrity of an individual hundred per cent. At the end of the day, whatever the standards prescribed, discipline comes from within and it finally devolves on to the individual's own conduct,” added Dr Pradhan.
“Selection norms for independent directors cannot be prescribed as independent directors are usually eminent personalities and this would act as deterrent,” said Mr Ramanathan. Usually companies use publicly available information to get independent directors, he said.
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
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