NEW DELHI (Bloomberg) - Indian federal investigators are probing 16 billion rupees ($349 million) of loans extended by Life Insurance Corp. of India and LIC Housing Finance Ltd., said a finance ministry official who declined to be identified.

Authorities November 24 arrested Ramachandran Nair, CEO of LIC Housing Finance Ltd., Rajesh Sharma, chairman of Mumbai-based securities firm Money Matters Financial Services Ltd. and executives at three lenders. The Central Bureau of Investigation accused Sharma of conspiring with Nair to bribe state-run lenders’ executives in exchange for loans for clients and confidential information.

Real estate shares and stocks of companies that were helped by Money Matters to raise funds plunged as lenders began reviewing loans to companies named by investigators in the bribery investigation. Property developers may face higher borrowing costs with loans being delayed, said Parikshit Kandpal, a Mumbai-based analyst at Ambit Capital Pvt.

“The probe raises a question mark on the system, one that could possibly lead to a downgrade of Indian stocks by foreign investors,” said Ambareesh Baliga, vice-president at Mumbai-based Karvy Stock Broking Ltd. “At the end of the day, money comes in due to perception.”

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 Life Insurance Corp. were the others arrested by the CBI.

“All the accused have opposed custody by the CBI,” said Anjani Kumar Singh, a lawyer representing Johar. “Our defense will be based on the investigation report which CBI files.”

Satish Maneshinde, the lawyer for Money Matters’ Sharma and Gattani, declined to comment. Sudipto Sil, LIC Housing Finance’s spokesman, said he did not have information on Nair’s lawyer.

Jaiprakash Associates Ltd. fell 7.6 percent to 105.8 rupees on Thursday. A unit Jaiprakash Power Ventures Ltd. used “partial” services of Money Matters to raise 16.5 billion rupees in debt, Managing Director Suren Jain said by phone on Thursday.

“All our dealings with Money Matters are above board,” Jain said. “Payments were made to them by cheques.”

Adani Enterprises Ltd. plunged 17 percent to 584.6 rupees. The company was asked to submit information on dealings with “multiple financial intermediaries including Money Matters” by the CBI, Devendra Amin, senior vice president, said by phone on Thursday. “The transactions have been done in complete compliance,” he said.

Property Developers

The Bombay Stock Exchange Realty Index fell to its lowest in 16 months on speculation banks may reduce lending to property developers.

India’s government has not told banks to reduce lending to real estate companies, Banking Secretary Gopalan told reporters in New Delhi on Thursday.

Life Insurance Corp. is not aware of a probe by the nation’s federal investigators on loans extended by the insurer and its mortgage lending unit, Chairman T.S. Vijayan said on Thursday.

LIC Housing dropped 11.6 percent to 931.15 rupees.