Diamond trade to meet with IBA over fears of tighter regulations

The Indian Bank’s Association will meet with members of the diamond trade on Wednesday to discuss the use of letters of undertaking (LoUs) and borrowing regulations in the wake of the PNB fraud case.

The IBA and the diamond trade will meet to discuss regulations in the wake of the PNB scandal - Nirav Modi- Facebook

As banks crack down on jewellery companies and seek to tighten regulations in the wake of the Punjab National Bank (PNB) fraud case involving the jewellery tycoons Nirav Modi and Mehul Choksi, the diamond jewellery industry is keen to show that this is the exception and not the rule. In order to do this, the diamond trade will seek to convince the IBA that malpractice at the bank prevented the fraud from being swiftly detected and not standard practices in the jewellery sector. The industry will also urge the IBA not to restrict loans to the sector as this could have a negative effect on it.

The Vice Chairman of the Gem and Jewellery Export Promotion Council, Collin Shah, made a statement on the matter and said: “There has been vast irregularity in Nirav Modi case. According to the Reserve Bank of India guidelines, quarterly and annual internal audits have to be carried out by banks which is followed by external audits. Special audits are also done by RBI at regular intervals. SWIFT transactions are intimated to NOSTRO and the treasury division of the bank. We are surprised to see that all these have been violated in the Nirav Modi case. We are therefore meeting IBA this week to put forward our point of view.”

Shah argues that, in the Nirav Modi case, all three of the layers that SWIFT messages go through were violated and that it why it was not discovered sooner despite estimates pegging the fraud as beginning in 2011. As the State Bank of India has already announced that it is tightening lending regulations for the jewellery sector, many other banks may soon follow and the GJEPC as well as the diamond sector at large is hoping to prevent this.

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