India’s outsourcing sector, still reeling from the $1bn-plus scandal afflicting Satyam Computer Services, received another blow on Monday when the World Bank said it had banned Wipro Technologies from doing business with it.

The World Bank included Wipro, India’s third-largest information technology outsourcing company, in a list of companies banned under the bank’s corporate procurement policy, accusing it of “providing improper benefits to bank staff”.

Wipro countered that it had acted lawfully and the matter would have negligible business impact as the World Bank was not a significant customer. But analysts said the bank’s announcement was the last thing the outsourcing sector needed.

“Even if the World Bank is not a big client for Wipro, this is not good news in the backdrop of the Satyam scandal. This announcement is likely to hurt the Indian IT industry,” said Sudin Apte, senior analyst and India head at Forrester Research.

The World Bank ban comes at a time when India’s IT outsourcing sector, one of its most important export industries earning about $40bn a year, is already fighting to defend its reputation following the Satyam scandal.

Indian police have arrested Satyam’s founder, B Ramalinga Raju, his brother Rama Raju and the company’s chief financial officer Srinivas Vadlamani, after revelations that the group’s books had been fixed over several years.

Indian IT companies rely on their reputation for integrity to attract new business from overseas clients, which entrust them with their most critical software, data and hardware systems.

The issue sent Wipro’s stock down by 8.46 per cent to Rs229.45 in afternoon trade on Monday while the benchmark Sensex was also dragged lower, down 3.15 per cent to 9,110.05 points.

Although unrelated to the Raju family scandal, Satyam was also named in the list of three companies banned by the World Bank from its “corporate procurement programme”, which along with Wipro included a smaller Indian firm, Megasoft Consultants.

Wipro was banned in June 2007 for four years while Satyam was banned for eight years starting in September last year.

Megasoft was banned for four years starting in December 2007 for “participating in a joint venture with bank staff while also conducting business with the bank”.

Wipro on Monday vigorously defended its actions, saying the ban represented a difference of opinion rather than any wrongdoing on its part.

It said that during its initial public offering of American Depository Shares in 2000 it used what it called a “commonly utilised and Securities and Exchange Commission- approved” programme that allows companies to sell ADS’ to employees and clients at the IPO price.

Under this “directed shares programme”, Wipro offered shares to the World Bank, through its chief information officer of the time and a senior staff member, whose names were not disclosed.

“They directed this offer to members of their family and friends,” Wipro said.

It said the World Bank staffers bought $72,000 of shares and signed a conflict of interest statement that the transaction did not violate the ethical standards of their own organisation.

Suresh Senapathy, Wipro chief financial officer, said: “Apparently, it looks like it was violative of their policy so in some form there was a disconnect between the declaration given and World Bank policy.”

But he said there was no onus on Wipro to disclose the matter earlier because it had acted within the law and the World Bank represented a negligible amount of business for the group, as little as $1m over eight years.