【Mumbai, Indi】$1.8 billion PNB fraud threatens to create liquidity problems in gems, jewellery sector

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Editor’s Note

The recent $1.8 billion fraud at Punjab National Bank, involving jeweller Nirav Modi, is sending shockwaves through India’s gems and jewellery sector. As financial institutions respond by tightening lending standards, industry leaders warn of a looming credit crunch for this capital-intensive trade. This article examines the potential fallout for one of India’s key export industries.

The gems and jewellery industry in India is home to more than 500,000 firms and employ over 2.5 million workers, according to Care Ratings. Photo: Pradeep Gaur/Mint
Fraud Impact on Industry Funding

The $1.8 billion fraud at Punjab National Bank (PNB) committed by billionaire jeweller Nirav Modi threatens to dry up funding for India’s gems and jewellery industry, as banks move to tighten their loan processes and seek higher collaterals.

“Getting finance will be hard. The industry is capital intensive. It is a high value product industry. Tracking the inventory is also a challenge for the financiers. Prudent financial arrangement should be evolved to avoid such a situation,”

Sankar Sen, chairman and managing director of Kolkata-based Senco Gold Ltd, said in a phone interview. He is also the chairman of Assocham National Council on Jewellery.

“Indian jewellery industry has two facets—exports and domestic. The domestic industry is essentially small jewellers and they do not take his (Nirav Modi) kind of loans. I don’t think it will have any impact on domestic business. Exporters will have an impact as they won’t get liquidity. I expect the number of compliances to go up,”

Sen said.

High Stakes for the Sector

The stakes are high. The gems and jewellery industry in India is home to more than 500,000 firms and employ over 2.5 million workers, according to Care Ratings. It contributes 6-7% of the gross domestic product (GDP) of the country, besides being an important foreign exchange earner. According to an official at SBI, the country’s largest lender has been shrinking its exposure to the gems and jewellery sector over the past three years.

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⏰ Published on: February 19, 2018