NEW DELHI/MUMBAI (Reuters) - The Central Bureau of Investigation (CBI) said on Monday it could widen its corruption investigation after the arrest of Sudhir Kumar Jain, chairman of state-run Syndicate Bank Ltd over allegations he was seeking bribes to favour debtors.
CBI said on Saturday it recovered 5 million rupees ($82,100) that a New Delhi-based company was allegedly paying via middlemen to the bank's head for a loan extension.
CBI spokeswoman Kanchan Prasad on Monday named the company as Bhushan Steel Ltd and said middlemen paid bribe money to Jain's relatives to win loan extensions after defaulting on repayment.
Bhushan Steel denied any wrongdoing and said it was in the process of taking appropriate "legal recourse".
"Please note that our company is not involved in any manner with regard to the alleged payments and the same are denied and hence in our opinion would not have any material impact," the company said in a stock exchange filing.
Prasad said the investigation could be widened to look at possible links between executives of other companies and state-run lenders. "If required, the angle of the probe can be widened," she said.
"This is an anti-corruption investigation and not a bank fraud case we are looking at," she added.
A court in New Delhi on Sunday granted four days of police custody for Jain, Prasad said.
His arrest is likely to renew demands for reform of Indian state banks, which control about two-thirds of banking assets and accounts for three-quarters of the sector's bad loans.
A committee appointed by the central bank in May termed corruption in state banks a major "public policy concern", and recommended the federal government cut its stake in these banks to below 50 percent.
The CBI spokeswoman said eight other people, including two directors of Prakash Industries Ltd - a company with interests in steel, power and mining - and middlemen, had been arrested over bribery allegations.
Prakash Industries could not be reached for comment.
The Finance Ministry placed Jain under suspension, effective last Saturday, Syndicate Bank said on Monday. The bank has taken steps for the smooth-running of its operations, it said in a separate statement, without giving details.
Syndicate Bank ranks 13th among India's more than three-dozen listed lenders with assets of nearly $42 billion, according to Thomson Reuters data.
The lender last week reported a 7 percent increase in quarterly net profit and higher bad loans.
Shares in Syndicate Bank closed 6.9 percent lower, after falling as much as 8.5 percent during trade on Monday. Prakash Industries slumped by their maximum daily limit of 20 percent, while Bhushan Steel closed 3.6 percent lower.
(Additional reporting by Krishna Das in New Delhi; Editing by Sumeet Chatterjee and Janet Lawrence)