India's reputation as a place to do business took another hit after the scandal-tainted government charged top public sector bankers with accepting bribes initially estimated at hundreds of millions of dollars.
The scandal is one of the biggest to taint India, potentially harming the image of Asia's third-largest economy as destination for foreign investors, especially as it comes a few days after Prime Minister Manmohan Singh has had to defend his government in another graft scandal involving telecoms licences sold at rock-bottom prices.
The federal Central Bureau of Investigation (CBI) on Wednesday arrested five officials from state-run listed lenders, including the chief executive of LIC Housing Finance, accused of taking bribes to facilitate large corporate loans.
Three senior executives from a listed private company were also arrested on charges of handing out the bribes.
Indian Finance Minister Pranab Mukherjee said in a statement on Thursday he had asked all banks, financial institutions and insurance firms to look into their exposures to firms named by federal investigators in the case.
"The message is not good, both for the market also for the economy," said D.H. Pai Panandiker, head of private think tank RPG Foundation in Delhi.
"All these things create a very bad image about the country and it's kind of loss of faith in the system," he said.
The scandals are unlikely to deter investors from India, one of the four key BRIC emerging markets in the world and a hot investment destination, analysts say.
"Anyone who has been an investor in India, has to be familiar with issues like these," Vikas Pershad, Chief Executive of Veda Investments in Chicago.
"So, if someone is pulling out of India based on the recent events, he or she is really mistaken. The long-term growth story is intact."
Investors are keen to tap into a country with a young and fast-urbanizing population of 1.2 billion. Economic growth is forecast at 8.5 percent in 2010-11, and then between 9 and 10 percent every year after that, levels rivalled only by China