Upset with the recent allegations on Nirav Modi and his uncle Mehul Choksi defrauding Punjab National Bank of $1.77 billion, the Gems and Jewellery Export Promotion Council (GJEPC), has strongly rebuked the absconding diamantaires for the crisis that has hit the industry. The association in a letter said that the industry ‘strongly condemns any sort of unlawful and illegal actions by any individual, trade or otherwise’.

The association expressed displeasure at the way Punjab National Bank cleared Letters of undertaking (LoU) to Nirav Modi and his businesses vis-a-vis the struggles of small and medium scale exporters. “On one hand GJEPC is struggling to garner financing to the Gem & Jewellery exporters, especially the SME Export Sector, who are required to give upward of high collateral for the limit sanctioned to them, and here one finds this kind of clear advances (LoU) being provided by a bank without any safeguards, that speaks volumes of irregularities that needs to be thoroughly investigated,” it added.

Last week, India’s second largest public sector bank, PNB disclosed to the stock exchanges that it had detected fraudulent and unauthorised transactions/messages to the tune of $1.77 billion or roughly Rs 11,400 crore. The beneficiary was alleged to be billionaire jeweller Nirav Modi. The allegations were that companies associated with Nirav Modi and his uncle Mehul Choksi were issued unauthorised letters of undertakings (LoU) based on which overseas branches of other Indian banks gave buyer’s credit to the jeweller’s companies.

“It should be noted that when thousands of exporters undertake business lawfully adhering to all norms and practices, prescribed very diligently, incidents of this kind can only take place due to non-adherence of procedures and norms laid down. The Council strongly believes that this incidence will not have any contagion effect to the gems and jewellery export industry,” the trade body said in its statement.

Although, this isn’t the only case that has affected the credibility of industry. Few years ago, diamond trader Jatin Mehta’s Winsome Diamonds too defaulted to the tune of nearly Rs7,000 crore.

In order to prevent such defaults, detailed internal audits are carried out on a quarterly and annual basis. This is followed by external audits and special audits by the apex bank, RBI (Reserve Bank of India). Every international transaction done through SWIFT transaction is intimated to NOSTRO (an account held by a homegrown bank in a foreign currency in another bank) and International Division (treasury) of the Bank. Additionally, the RBI launched Export Data Processing and Monitoring System (EDPMS) in 2014 wherein all export/import transactions are recorded and followed up till their realization by banks and customs.

“This scam (Nirav Modi-Gitanjali default) will further hamper our credit facility. We are hoping we don’t have to bear the brunt for someone else’s mistakes,” says a diamond merchant based in Surat and has been regular supplier to some of the biggest jewellery brands in the northern part of the country.

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