State-owned Indian Bank and Andhra Bank are cracking down on middlemen, who act as facilitators between lenders and borrowers, to clean up the system after the recent arrest of the Syndicate Bank chairman and company executives over corruption related to enhancing credit limits. While Indian Bank has banned middlemen or arrangers from entering the premises, Andhra Bank has stipulated that an intermediary should always be accompanied by a borrower. State Bank of India doesn't plan any changes to its policy as it follows a rigorous due dili gence process, said Chairman Arundhati Bhattacharya. SBI accounts for 20% of all loans. Syndicate Bank chairman and managing director SK Jain was arrested by the Central Bureau of Investigation on August 2 over charges of corruption. He was arrested for seeking Rs 50 lakh in bribes to increase loan limits for Prakash Industries and Bhushan Steel. CBI also arrested some intermediaries who were said to be negotiating the bribes. The August 4 memo issued by Indian Bank CMD TM Bhasin was explicit: “It has been ensured that no middlemen or arrangers to meet top management so as to avoid extraneous pressures or obligations,“ it said, adding, “Middlemen or arrangers should not be entertained at the zonal and branches level.“ It further said that that all official meetings with the CMD, executive directors and general managers will be held in conference or meeting rooms that have CCTV cameras with a notice making clear that proceedings were subject to surveillance. Also, the bank has directed staff that visitors should only be allowed to carry with them papers, laptops and tablets that are required for meetings or discussions with an X-ray machine installed at the entrance to check those who come in. While many banks are taking a closer look at their policies, the banking regulator is considering measures to improve corporate governance. “There are some good middlemen and some not-so-good middlemen. A good middleman acts as a broker. But if the point of a middleman is to pay bribes, that is obviously not OK. It's part of the whole set of governance issues that we need to look at,“ Reserve Bank of India governor Raghuram Rajan said last week. The central bank under Rajan has been campaigning for banks to take a tough line on bad loans that act as a drag on finances. For small and medium-sized companies that are not well versed in bargaining for better terms with lenders, intermediaries play a significant role. “Intermediaries will be there, they are unavoidable. How to regulate them is an issue,“ said CVR Rajendran, CMD of Andhra Bank. Andhra Bank has made it mandatory for officers to mention from where or from whom the loan proposal originated. Intermediaries will have to arrive and leave along with the borrower. This rule stems from bank officials noticing that intermediaries often ask the borrower they've accompanied to step out from the room for a few moments. The intermediary may then give the borrower the impression that a gratuity of some sort is expected. The Syndicate Bank episode is the third instance in the recent past in which middlemen were involved in bribes-for-loans cases, following such occurrences at State Bank of India and LIC Housing Finance. [Click To Enlarge]

By Bhuma Shrivastava and Santanu Chakraborty - Aug 11, 2014

India approved the setting up and listing of real-estate investment trusts as the nation seeks to unlock a $20 billion market.
The trusts, or REITs, will have to own assets worth at least 5 billion rupees ($82 million), the Securities and Exchange Board of India said in New Delhi yesterday. Investors must put in a minimum 200,000 rupees. Final notifications would be issued soon to make the new rules for REITs effective in a month or two, Press Trust of India reported, citing U.K. Sinha, chairman of the capital-markets regulator.
The introduction of REITs will provide a new source of funding for cash-strapped developers that are struggling to reduce debt amid one of the highest interest rates in Asia and economic growth near the lowest in a decade. The products will give investors the ability to participate in the country’s property market without investing directly.
“The sector has been in all sorts of trouble primarily due to high leverage for most of the developers,” Pramod Gubbi, director for institutional sales at Ambit Capital Pvt., said in an interview to Bloomberg TV India. “What REIT does is to open up another avenue for funding and this should bring down their cost. More money in the hands of the developers could see more projects taking off.”
DLF Ltd. (DLFU), India’s largest developer by value with about 28 million square feet (2.6 million square meters) of operational rental assets, could be a “big beneficiary,” brokerage Emkay Global Financial Services Ltd. said in an Aug. 1 report.

Combined Debt

Other gainers include Prestige Estates Projects Ltd. (PEPL), a Bengaluru-based developer with 8 million square feet, and Phoenix Mills Ltd. (PHNX), a mall operator that owns 6 million square feet, according to HDFC Securities Ltd.
The S&P BSE India Realty Index rose 2.6 percent as of 9:56 a.m. local time. DLF added as much as 4.2 percent, Prestige 4.5 percent and Phoenix Mills 4.8 percent.
The combined debt of India’s six largest developers climbed to a record 394 billion rupees in the 12 months through March 31, more than double the 158.8 billion rupees in 2007, according to data compiled by broker IIFL Ltd.
REIT-funded assets may reach $20 billion by 2020, according to an estimate by property-broker Cushman & Wakefield, of which as much as $12 billion could be raised in the first three to five years.

Top Markets

“It’ll also provide liquidity to investors as these trusts will be listed and traded on stock exchanges,” Neeraj Bansal, partner and head of the real estate and construction practice at KPMG India, said in an e-mail.
REITs, pioneered in the U.S. in the 1960s, are traded publicly and pool investor money to buy real estate such as shopping malls, office buildings and rental housing. India’s REIT market has the potential to grow to rank among the top five markets in Asia by market capitalization, according to Cushman & Wakefield.
While the market regulator had released the first draft of guidelines for REITs in 2008, they didn’t get final approval because of a lack of clarity on taxes and because the global financial crisis hurt the investment climate, according to a report by Knight Frank LLP in June. The regulator released a new set of guidelines in October, outlining the eligibility criteria for setting up REITs.
To contact the reporters on this story: Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net; Sam Nagarajan at samnagarajan@bloomberg.net Sunil Jagtiani

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