*8 executives arrested, charged with taking bribes for loans
*21 medium-to-large companies asked to cooperate with CBI
*Government says financial system not at risk
*Lending, real estate stocks fall sharply
(Adds share price moves, details)
By Krittivas Mukherjee and Devidutta Tripathy
NEW DELHI, Nov 26 (Reuters) - India's federal investigator is probing 21 sizeable companies for links to a bribes-for-loans scandal that has hit lending and infrastructure shares and hurt the country's image as an investment destination.
The scandal, in which eight financial executives from the public and private sectors have been arrested, is one of several to dog the government of Prime Minister Manmohan Singh, putting to the test the ability of one of the world's fastest growing emerging economies to crack down on corruption.
Many of the companies the federal Central Bureau of Investigation (CBI) has linked to the bribes scandal are connected to the booming infrastructure sector -- builders of dams, hydro-electric plants, energy equipment makers and property developers.
Shares in these sectors fell sharply on Friday.
India's stock market regulator SEBI has also stepped in with its own investigation into related possible insider trading, a source at SEBI told Reuters.
The Indian bond and rupee markets remained unaffected as traders did not view it as a risk to the banking system.
Analysts said the scandal, which comes just a few days after Singh had to defend his government in another case involving mobile phone licences sold for below-market prices, could harm investor sentiment.
"This is just unfolding at this point in time. These are very serious issues which impact investor sentiments," said Nitin Jain, Singapore-based principal of fund manager Kotak Mahindra.
"If we can clearly say that we have done something right at this point in time and do proper things at this point in time then it's salvageable but otherwise it does have a potential to impact investor sentiments towards India from a medium-term perspective," Jain said.
Investors, so far, remain keen to tap into a country with a young and fast-urbanising population of 1.2 billion. Economic growth is forecast at 8.5 percent in 2010-11, and between 9 and 10 percent a year after that, rivalled only by China among major economies.
But the revelations of one scandal after the other in recent months marks a change from the days when corruption and graft would never make it onto the front page on most of the country's top media outlets.
Analysts say this is due to the explosion of 24-hour television channels, a more assertive opposition and a growing middle class fed up with rampant graft throughout society.
MORE COMPANIES LINKED TO BRIBES
"Notices have been sent to 21 companies. It includes big to medium size companies, including real estate companies," a CBI official, who did not want to be named, told Reuters.
"Preliminary evidence points to the fact that the case is limited to individuals. So fall out is unlikely that it is big."
Several leading Indian companies have already acknowledged that they have been asked for information. Some of these companies were already named in court documents filed by the CBI on Wednesday, including the world's third largest wind turbine maker Suzlon Energy . Suzlon has denied any wrongdoing.
On Wednesday, federal agents arrested senior officials at state-run Central Bank of India , Punjab National Bank and Bank of India -- all major banks with operations across the country.
The CBI said the executives arrested had received bribes from private broker Money Matters Financial Services , which acted as a mediator of corporate loans and other facilities.
Three senior executives from the listed private company were also arrested on charges of handing out the bribes.
Shares in real estate and energy sectors have fallen over the past few days on fears that a cash crunch could delay or derail major development projects, some key to India's infrastructure expansion goals.
India, Asia's third largest economy, is seeking to spend $1 trillion over the next five years.
Finance Minister Pranab Mukherjee has asked all banks, financial institutions and insurance firms to look into their exposure to firms named by federal investigators in the case.
India was ranked 87th in Transparency International's 2010 ranking of nations based on the perceived level of corruption. India lies behind rival China, which is in 78th place.
(Additional reporting by Delhi and Mumbai bureaux; Writing by Paul de Bendern; Editing by Andrew Marshall)
(Created by Andrew Marshall)