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PNB fraud: Jewellery export body for uniform lending rules at all banks

In a letter addressed to Arun Jaitley, GJEPC suggests a meeting should be convened of all bank chiefs

Dilip Kumar Jha  |  Mumbai 

Punjab National Bank
Punjab National Bank

The Gems and Export Promotion Council (GJEPC) has some suggestions for avoiding a repeat of the (PNB) scam.

The body, operating under the aegis of the Union Ministry of Commerce, has recommended to the that a uniform lending standard should be adopted across

In a letter addressed to Minister Arun Jaitley, 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

represents 95 per cent of the $43-billion diamond trade in India, with 6,500 members, across all value chains.

differ in lending norms to 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 companies have been alleged to inflate their balance sheets through means such as round tripping and over-invoicing of saleable ornaments.

"All today practice different types of lending norms. In the process, many genuine players do not get 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/scam erupted a fortnight before, 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

"Letters of undertaking (LoUs) are not a prevalent practice to raise working capital from 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-and scam is an aberration for the entire gems and 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 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 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.

First Published: Wed, March 07 2018. 19:15 IST