Eight top officials from Indian banks and financial firms were arrested on Wednesday on charges of taking bribes to grant corporate loans, dealing another blow to Indian markets hit by a multi-billion dollar telecoms scam.

The Central Bureau of Investigation said those arrested included the chief executive of LIC Housing Finance and senior officials at state-run Central Bank of India, Punjab National Bank and Bank of India.
   
The accused received bribes valued at hundreds of millions of dollars from private finance firm Money Matters Financial Services, which acted as a 'mediator and facilitator' of corporate loans and other facilities, the CBI said.   

The CBI declined to disclose details on the size of the loans, but they would have been significantly larger than the alleged bribes. The names of the companies that gave bribes were not disclosed to the media.

'The markets have been struggling to digest a lot of bad news in the last few days and this scandal adds to the headwinds. Investors will certainly react nervously,' said Jagannadham Thunuguntla, equity head at SMC Capital.  

LIC Housing Finance said in a statement that it followed all 'procedures and due diligences' in approving the loans.   

Corruption has long been a major problem in Asia's third-largest economy. The CBI revelations come on the heels of a telecoms scandal that has forced India's telecoms minister to resign and has paralysed the country's parliament.   

'I don't think there is any dearth of regulatory norms in the country; lack of implementation of the regulations leads to these kind of financial crimes,' Thunuguntla said. 'We need to ensure the regulations are implemented properly to avoid these cases.'    

The federal investigative agency did not provide financial details of the charges, but analysts said huge sums of money could be involved and many corporate houses could also be probed for possible involvement.   

All the arrested have been remanded in police custody for five days, CBI spokesman Harsh Bahl said.
   
Officials at Central Bank of India, Money Matters, Punjab National Bank and Bank of India could not be reached for comment.        

On Wednesday, shares in LIC Housing Finance closed down 18 percent, Central Bank fell 8 percent, Punjab National Bank dropped 3 percent, and Bank of India slipped 6 percent on reports of the charges. Money Matters plunged 20 percent.   

Analysts said there could be more hammering of the stocks on Thursday, as jittery investors worry about the financial impact of the scandal on the companies.   

'Very clearly, as names come out, it will impact stocks. Individual stocks will be impacted instead of across the market,' Arun Kejriwal, strategist at research firm KRIS in Mumbai said.

The CBI has registered five separate cases on charges of corruption in the ongoing investigation, said P. Kandaswamy, a joint director at the CBI.

This is the third big Indian corruption scandal in the past few months. Before the telecom scandal hit, the Commonwealth Games were also riddled with corruption allegations. The head of the organising committee has since been forced to resign.

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. - Reuters