Banks forcing diamond merchants to formalise post-Nirav Modi

Shiv Kumar
Tribune News Sercice
Mumbai, January 15

State Bank of India's new credit policy under which gem and jewellery merchants with loans of Rs 50 crore and above are required to incorporate themselves has left several medium diamond merchants reeling.

The country's biggest public sector bank which accounts for a bulk of loans to the diamond cutting and polishing sector has set a deadlineof December 2019 for the incorporation process to be completed. Those in the trade fear that incorporation of their companies would require them to open up their books for inspection by auditors and various government agencies and would subject them to harassment.

"At the very least several companies will have to hire chartered accountants and lawyers to complete the process of incorporation. In addition, these companies will have to get their books audited regularly," an office-bearer of the Gem and Jewellery Export Promotion Council said.

After the Nirav Modi and Mehul Chokshi scams hit the banking sector, private and public sector banks in the country had tightened lending norms to the gem and jewellery sector. Members of the influential sector based mainly in Gujarat and Rajasthan have been lobbying with the union finance ministry for relaxation in lending norms for most of last year.

Many in the trade fear that the new regulations by SBI would adopted by other banks as well.

With most of the diamond cutting and polishing sector operating in an opaque manner, many in the trade fear that medium-sized companies would also have to resort to borrowing from the grey market like their counterparts in the small-scale sector.

With Modi and his uncle Choksi caught round-tripping rough stones in and out of the country, the sector is already facing increasing scrutiny and procurement of rough stones and export of polished gems to associate companies has been restricted. "This business operates entirely on trust and the trade is controlled mainly by Palanpuri Jains from Gujarat and Rajasthan who are closely connected," says a small trader from Mumbai.

With families in the diamond trade having close relatives in major centres like Antwerp, Dubai, Hong Kong and other places round-tripping is more norm than exception, it is felt.

Meanwhile following the rise in NPAs, prominent Indian banks are shutting down operations in Belgium from where diamond traders routine source cheaper credit. ICICI Bank has followed Union Bank of India in exiting Belgium and other Indian banks are expected to follow suit.