Post-PNB fraud, Gems and Jewellery sector readies white paper for banks

retail1
By retail1 April 28, 2018 05:10

Post-PNB fraud, Gems and Jewellery sector readies white paper for banks

New Delhi: The gems and jewellery industry is coming out with a white paper that would address bankers’ concerns about lending to the sector, said a senior functionary of Gem & Jewellery Export Promotion Council (GJEPC).

The white paper, being prepared by the industry in consultation with lenders, will detail collateral norms, inventory and subsidiary financing guidelines, Colin Shah, vice chairman, GJEPC, told The Wire.

The exporters’ association has planned to release the paper in a seminar in Mumbai on May 11, Shah said.

Bankers have turned cautious about lending to the sector in the wake of the mega scam perpetrated by diamantaires Nirav Modi and Mehul Choksi in Punjab National Bank (PNB). The industry has taken the initiative to assuage banking industry’s concerns.

Meanwhile, India’s gems and jewellery exports fell by 5% in 2017-18, hit by factors like credit crunch and chaos triggered by the hasty roll-out of the goods and services tax (GST).

Gems and jewellery exports in 2017-18 were at $40.97 billion, as compared to $43.15 billion the previous year, said GJEPC.

The industry contributes about 15% to India’s merchandise exports. Its poor performance during March left the country’s overall merchandise exports for the period in the negative zone, for the first time in 16 months.

 Gems and jewellery exports tanked by over 16% in March, sending growth in the country’s overall merchandise exports in the negative zone too.

Exports during March 2018 were valued at $29.11 billion, as compared to $29.30 billion during the same month last year, registering a negative growth of 0.66%.

Facing flak over its failure to detect the mega scam in the PNB, the Reserve Bank of India (RBI) on March 13 issued a notification, disallowing issuance of Letter of Undertakings (LoUs) and Letters of Comfort (LoCs) for funding imports, forcing traders to use expensive Letters of Credit (LCs) instead.

LoUs were used by Nirav Modi and Mehul Choksi-promoted companies as a tool to defraud PNB of more than Rs 11,000 crore in a scam that shook the public’s confidence in the country’s public sector banks. PNB officials in a Mumbai corporate branch fraudulently issued LoUs, bypassing the bank’s core banking software. State Bank of India (SBI) and other public sector banks provided financing to these companies against the LoUs issued by PNB. This fraud was going on since 2011.

Perhaps, the decline in gems and jewellery exports would have been much sharper but for the rampant over-invoicing of diamond imports that authorities fear happened during April-November 2017.

As reported by The Wire in February, there has been scepticism about India’s exports data due to the fear of diamond traders resorting to massive over-invoicing of import bills as part of a money laundering racket.

Since imported diamonds are re-exported after cutting and polishing – the only value addition done in the country – the inflated import price automatically reflects in export value.

India’s diamond imports had seen a four-fold jump during April-November 2017, according to the commerce ministry. According to GJEPC sources , the value of diamond imported during the first eight months of 2017-18 may have been inflated by at least $4 billion to send black money outside the country.

Neither trade experts nor government officials concerned could explain this trend. Imports of cut and non-studded diamonds rose 284% in April-November 2017 to Rs 40,809 crore, or $6.3 billion, from Rs 10,672 crore in the same period last year.

An internal note of the finance ministry, prepared in the wake of the over Rs 11,000 crore scam in the Punjab National Bank, too had raised the suspicion of diamond import being misused as conduit for money laundering by pointing to related party transactions at inflated prices and high trade receivables of three Nirav Modi-promoted companies.

News: The wire.in

Image: Navi Mumbai.com

 

 

retail1
By retail1 April 28, 2018 05:10
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