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Federal investigators started giving details of charges against eight financial executives at a special court hearing yesterday as part of a probe into bribes and improper loan disbursements at the nation’s largest insurance company and some state-owned banks.

The Central Bureau of Investigation’s lawyer Ejaz Khan brought charges against LIC Housing Finance Ltd Chief Executive Officer Ramachandran R Nair and seven other bank and brokerage officials in the court in Mumbai yesterday.

Shares last week slumped on concern of rising corruption in Asia’s second-fastest-growing major economy and prompted Finance Minister Pranab Mukherjee to ask state-owned banks to review loans to the companies named in the probe. The arrests follow a two-week deadlock in parliament as opposition parties sought an investigation into a separate case of alleged graft over the sale of phone licenses at below-market rates.

“Issues of corruption and corporate governance have been a matter of concern for India and it needs to be tackled,” said Walter Rossini, who manages $350mn in an India fund at Aletti Gestielle Sgr Spa in Milan. “It is important because Indian companies are more leveraged than before and they are in the process of raising a lot of capital.”

Indian shares fell last week, driving the benchmark Sensitive Index to the longest stretch of weekly declines since February.

Claris Lifesciences Ltd, seeking funds through an initial share sale, cut the offer price on November 26 and extended the deadline for bids by four trading days. The Sensex rose 1.4% yesterday.

India was ranked 87th out of 178 countries in Transparency International’s 2010 Corruption Perceptions Index, scoring the same as Albania, Liberia and Jamaica. China was rated less corrupt in 78th place.

Authorities are investigating Rs16bn ($349mn) of loans extended by Life Insurance Corporation of India and LIC Housing, according to a financial ministry official who declined to be identified.

“We are at primary stage of investigation and are going through several documents,” CBI’s lawyer Khan told Judge S P Tavade in court yesterday.

The CBI accused Rajesh Sharma, chairman of securities firm Money Matters Financial Services Ltd, of conspiring with LIC Housing’s Nair to bribe state-run lenders’ executives in exchange for loans for clients and confidential information.

R N Tayal, a manager at Bank of India; Maninder Singh Johar, a part-time director at Central Bank of India; Venkoba Gujjal, deputy general manager, Punjab National Bank; Sanjay Sharma and Suresh Gattani of Money Matters and Naresh Chopra, secretary investment at the Life Insurance Corporation were the others arrested last week.

“All the accused have opposed the custody by the CBI,” Anjani Kumar Singh, Johar’s lawyer, said in an interview on November 26. “Our defence will be based on the investigation report which CBI will file.”

Satish Maneshinde, the lawyer for Money Matters’ Sharma and Gattani, declined to comment on November 26. Sudipto Sil, LIC Housing Finance’s spokesman, said he didn’t have information on Nair’s lawyer. Money Matters is co-operating with investigating agencies, the company said in a statement on November 25.

The arrest of Central Bank’s Johar won’t have any effect on the bank’s operations, said S Sridhar, chairman and managing director of the Mumbai-based lender. Punjab National Bank will be more diligent while providing loans, chairman K R Kamath said in a telephone interview.

Bank of India is reviewing loans given to companies mentioned by investigators, said chairman Alok Kumar Misra.

The nation’s capital market regulator is taking all steps to protect investor confidence and will investigate any “unusual market activity,” Prashant Saran, a member of the Securities and Exchange Board of India, said.

The Times of India said Punjab National Bank and Bank of India had written off about Rs4bn ($87mn) in the first three months of this fiscal year.

A majority of the bad debt write-offs include defaults on loans extended to the real estate sector, the newspaper said, without saying where it got the information.

The CBI was set to examine all write-offs and big loans extended by the state-run banks hit by the scandal, especially to the booming real estate sector, Times of India said.

Last week the CBI widened its probe to 21 firms for links to the bribes-for-loans scandal, and many of the companies linked to the case are connected to the booming infrastructure sector.

Several leading companies were named in court documents filed by the CBI last week and include the world’s third largest wind turbine maker, Suzlon Energy , infrastructure company HCC’s Lavasa unit and real estate firm DB Realty.

All three have denied any wrongdoing.