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The Rs 114-billion Nirav Modi-Gitanjali Gems scam involving Punjab National Bank is unlikely to have a contagion affect on the gems and jewellery export sector, says apex industry body, Gems and Jewellery Export Promotion Council (GJEPC).
The Indian diamond industry has tens of thousands of factories and about 6,000 exporters regarded as world leaders in diamond processing. Total exports of the precious stone stand at around $23 billion, with a value addition in excess of $7 billion.
In a statement on Saturday, GJEPC said that the Nirav Modi-Gitanjali Gems incident is of concern to the entire industry, which strongly condemns any sort of unlawful and illegal action by any individual, trade or enterprise.
"When thousands of exporters conduct business lawfully, adhering to all norms and practices (that have been) prescribed very diligently, incidents of this kind can only take place due to non-adherence of procedures and norms laid down. We strongly believe that this incident will not have any contagion effect on the gems and jewellery export industry," said Pramod Aggarwal, Chairman, GJEPC.
Bank finance to the trade is already guided by stringent norms set by the Reserve Bank of India (RBI) and the Government of India, with detailed internal audits in place on quarterly and annual basis. This, in turn, is followed by external audits and a special audit by the RBI every few years.
Every SWIFT transaction by the bank is intimated to the Nostro and international division (treasury) of the bank. In addition to this, RBI launched export data processing and monitoring system (EDPMS) in March 2014 to monitor payments against export/import bills. It is a system where all export/import transactions are captured and followed up till their realisation by banks and customs.
"Going by the prevalent compliance system followed, chances of such vast irregularity without any detection across several financial periods are extremely surprising and unreasonable. This only demonstrates lacunae in internal control system and failure or lack of fraud-protection measures within the bank," he added.
On the one hand, GJEPC is struggling to garner financing for gem and jewellery exporters, especially those in the SME export sector, who are required to furnish a very high collateral for the limit sanctioned to them. On the other, one finds this kind of clear advances (LoU) being provided by a bank without any safeguards, whicj speaks volumes about irregularities that need to be thoroughly investigated, GJEPC said in a statement.
The gems and jewellery sector contributes to seven per cent of the country’s GDP, 15 per cent of its merchandise exports and employs more than 4.5 million people. The sector also maintains global leadership in processing of diamonds and gemstones.
Many industry experts, however, feel that a scam of this nature would hurt working capital borrowings for the entire sector.