After Goodwin default, IBJA calls for ban on jewellers' deposit schemes

Other industry players oppose the proposal for a ban, say such a move would render thousands unemployed

Less than two years after the Punjab National Bank (PNB)-Nirav Modi/Mehul Choksi scam rocked the entire jewellery industry, Kerala-based Goodwin Group’s default in redemption of jewellery schemes ahead of Diwali has again jolted investors and the jewellery industry.
 
Having started as a small jewellery manufacturing unit in Thrissur in 1992, the Goodwin group gradually entered into jewellery wholesale, and then retail business. The group entered the Mumbai market in 2004 and steadily expanded across Maharashtra with its jewellery retail shops, mostly through owned and franchise routes.
 
With money of thousands of depositors in its schemes, the group shut shop about 10 days ago across Maharashtra, thereby rendering its depositors clueless about the recovery. Now, depositors have filed criminal cases against Goodwin’s promoters — Chairman Emeritus A G Mohanan, Chairman A M Sunikumar, Managing Director A M Sudheeshkumar, and store managers, for cheating, breach of trust, etc.

 

An email sent to the Goodwin group did not elicit any response.
 
“While the government had recently amended the law that governs jewellers’ deposit schemes, jewellery companies continue to accept public deposits. The government must ban jewellers to run such deposit schemes. Else, the jewellers that have diverted public deposit funds to real estate or any other avenues would continue to default. So, more such defaults cannot be ruled out in future,” said Surendra Mehta, national secretary, India Bullion and Jewellers Association (IBJA).
 
Mehta advised that the government run gold deposit schemes like the Gold Monetisation Scheme (GMS) and purchase gold through banks on the day of public deposit, and credit gold in their respective accounts. On maturity, however, the government could transfer funds in the jeweller’s account to facilitate customers’ jewellery purchase, he said.

 
“Alternatively, the government could come out with a law making it a must for jewellers to buy gold for the value of public deposit and keep it safely with depositories,” said Mehta.
 
Currently, customers invest in monthly deposit schemes run by jewellers that have no guarantee of redemption. The scheme is run purely based on the trust between a jeweller and its customers. Jewellers mostly run monthly deposit schemes for 9-month and 12-month periods and offer equivalent to 75 per cent or 100 per cent amount of the first instalment on maturity to lure customers.
 
However, there are others who oppose any move to ban such schemes.

 
“Goodwin Group’s default could be an isolated case; it may not be true of all jewellers. Most jewellers have endorsed a trustworthy relation with their customers. Hence, many investors have redeemed their invested fund to purchase jewellery this festive season and have renewed the same for another term. Between 30 per cent and 40 per cent of the entire jewellery business comes from monthly deposit schemes. Hence, a ban on such schemes would paralyse the jewellery business, which has been struggling to overcome the ongoing downturn,” said Anantha Padmanabhan, managing director NAC Jewellers and chairman All India Gems and Jewellery Domestic Council (GJC).

 
Padmanabhan added that jewellery business had taken a hit of at least 50 per cent in the past year alone, thanks to an increase of over 20 per cent in gold prices and a 30 per cent decline in sales. At 30 tonnes, gold sales were reported to be reasonably well this festive season despite high prices.
 
Meanwhile, lenders have intensified monitoring and surveillance since the Rs 12,000-crore PNB-Nirav Modi scam surfaced early last year. The scam has made borrowing very difficult for working capital. The Goodwin group’s default is set to worsen working-capital rotation from domestic investors.