ALSO READPNB fraud: Justice I deserve is far off, says Mehul Choksi to jobless staff After PNB scam, Mehul Choksi defaulted on Rs 1.21 billion to J&K Bank PNB's haste closed all options to clear debt, Nirav Modi tells banks Nirav Modi scam at PNB: CBI arrests 3 more, ED to question five banks PNB scam: Odisha to review Gitanjali group's Rs 6-bn jewellery park project
In a letter addressed to Finance Minister Arun Jaitley, GJEPC suggests a meeting should be convened of all bank chiefs to address the differences in existing guidelines amongst them, and draft a new one for all banks.
Banks differ in lending norms to jewellery entities; the scam involves manipulation of the rules by prominent firms in the segment. One bank might seek diamonds as collateral; another might clear a loan based on customer companies' balance sheets. Diamond jewellery companies have been alleged to inflate their balance sheets through means such as round tripping and over-invoicing of saleable ornaments.
"All banks today practice different types of lending norms. In the process, many genuine players do not get finance for working capital. And, a few get finances unscrupulously. Uniform lending guidelines would result in strict adherence through the banking system," said an industry veteran.
Colin Shah, vice-chairman of GJEPC, declined to share the letter's details. "The content would be made public in due course," he said in response to a query.
Since the PNB-Nirav Modi/Mehul Choksi scam erupted a fortnight before, GJEPC has been meeting banking officials in charge of lending to the entire diamond value chain, from the stage of rough diamond import to retailing of jewellery.
"Letters of undertaking (LoUs) are not a prevalent practice to raise working capital from banks. LoUs were the invention of the people involved in the scam. The diamond trade uses Lines of Credit for execution of orders. Hence, the PNB-Nirav Modi and Gitanjali Gems scam is an aberration for the entire gems and jewellery sector. The business would normalise in a couple of months," said Shah.
Meanwhile, says GJEPC, it has initiated cancellation of membership of Firestar Diamond, owned by Nirav Modi, and Gitanjali Gems, headed by Mehul Choksi. The Council has issued a showcause notice to both, seeking a response by this Friday. Later, it will refer the case to its the disciplinary committee, to initiate cancellation of membership.
Informed sources say Nirav Modi's clients in America have cancelled orders, withdrawn products from display in showrooms and also returned goods to his companies. All of which has forced Firestar Diamond to apply there for what is termed Chapter 11 bankruptcy, where an insolvent debtor usually proposes a plan of reorganisation to keep its business alive and pay creditors over time.