Once bitten… bankers pay more visits to gems units

KOLKATA: Public sector lenders have stepped up due diligence and audit of the gems and jewellery sector following the Rs 13,600-crore fraud at Punjab National Bank which was allegedly masterminded by diamantaire Nirav Modi and jeweller Mehul Choksi, according to industry executives.

Diamond exporters and traders said bank officials are making frequent visits to their facilities for stocktaking and also to find out the trend in global markets. Some banks are even considering getting the stocks valued by independent experts before lending to the sector, they said.

“Public sector banks are trying to know more about the diamond trade. Bank officials are visiting the factory premises to carry out an audit of the stocks,” said Vipul Shah, a leading diamond exporter. “Banks are expected to tighten their purse strings while lending to the gems and jewellery sector. It may hurt the trade for some time, but in the long term, this will bring more transparency in the trade and genuine players will only remain.” Some bankers, however, have reservations about the efficacy of store audits, given the current IT infrastructure level in several jewellery firms.

“Not many firms have centralised inventory control. It is impossible for banks to do stock audit on a realistic basis by merely visiting stores and factories. Many big or mediumsize retailers have over 100 stores across the country,” said a banker. “You won’t find adequate number of independent assessors, which is also a major hindrance.” Banks’ sentiments have been dented further by the alleged Rs 824-crore fraud by Chennai-based Kanishk Jewellers. The CBI has booked the firm, promoted by Bhoopesh Kumar Jain and his wife Neeta Jain, for defrauding at least 14 banks. The CBI has acted on a complaint lodged by State Bank of India.

In the midst of this, the country’s diamond trade has lost its sparkle. India processes about a billion diamond pieces annually, which in value terms amounts to $ 23 billion. Domestic consumption is 7 per cent of the total diamond trade. “There may be a 3-4% drop in domestic consumption post the Nirav Modi incident. But exports have not slowed down,” said Dinesh Navadiya, former president of Surat Diamond Association.

In February, India’s import of rough diamonds showed a 9.26 per cent drop from a year ago, which, according to the industry, is not a fallout of the Nirav Modi fraudulent case.

The Gem & Jewellery Export Promotion Council (GJEPC) had recently held a closed door meeting with bankers on the recent developments. Collin Shah, vice-chairman of GJEPC, who was present at the meeting, said, “GJEPC has decided to form a committee with senior bankers to find out how risk can be mitigated in diamond trade and financing to the sector remains smooth.”