India's federal investigation agency has arrested the chairman of a large, state-run bank over allegations of bribery in what could become a far-reaching probe into other aspects of the country's banking system.

India’s Central Bureau of Investigation on Saturday arrested Chairman Sudhir Kumar Jain of state-run Syndicate bank Ltd. (BOM:532276) and said that it has recovered millions of rupees from him. The CBI reportedly arrested Jain after tapping into phone conversations in which he was overheard demanding bribes from private companies. The agency has also seized documents and computer files that point to the involvement of senior officials from other banks in the scandal, according to local media reports, which added that CBI is also investigating 12 more people on graft charges. 

“We have arrested some middlemen who would broker the deals for grant of credit extensions to private companies. During the simultaneous raids at 20 locations (on Saturday), the probe teams seized computers from the premises of the accused persons. Data from those computers may provide further inputs into such practices in other banks,” an official said, according to The Hindu, a local newspaper.

According to The Economic Times, the CBI also seized 2.1 million rupees ($34,505) in cash; gold worth 16.8 million rupees ($276,043); and term deposits worth 6.3 million rupees ($103,516) from Jain, while a BBC report said that the agency had seized about 5 million rupees ($82,000).

Although the number of officials to be booked on graft charges fell in 2013, the arrests come as the first move against corruption by the Narendra Modi-led government in New Delhi. 

The process of granting large loans by a bank's board of directors was changed two years ago in the country, and now such loans are sanctioned by committees chaired by the chief managing director. However, some are skeptical about the effectiveness of such measures at hierarchy-driven state-owned institutions.

"Which GM (General Manager) or ED (Executive Director) will stand up to the CMD and say that he disagrees with the chief on a loan proposal," a retired bank chief said, according to The Economic Times.

"This entire process of pricing a loan, documentations and appraisal is faulty. There is adequate scope to manipulate the system. This needs to be changed," he said, adding: "RBI may take measures to ensure that there is more transparency and accountability in sanctioning of loans."

Syndicate Bank’s global deposits increased 17.7 percent to $35.3 billion in this year’s first quarter from $29.99 billion in the same quarter last year, according to a statement from the bank on July 31. Its domestic deposits rose 15.53 percent to $30.85 billion in the first quarter of the 2015 fiscal year, up from $26.7 billion last year.

The bank's stock dropped almost 6 percent in early-morning trade on the BSE Sensex on Monday.