A year after the Nirav Modi scandal, diamond businesses face stricter banking regulations

India’s diamond jewellery businesses are being forced to rethink their strategy as banks impose stricter regulations following the Nirav Modi fraud scandal at the Punjab National Bank (PNB).

Banks like SBI are tightening lending regulations for diamond jewellery businesses - AFP

After news of jewellery tycoons Nirav Modi and Mehul Choksi’s alleged fraud at the PNB broke and was named the largest scale fraud in India’s banking history, many banks tightened regulations around lending to similar businesses. This has forced fine jewellers to rethink their finances.

State Bank of India, one of the main lenders to India’s jewellery sector, has capped borrowing at Rs 1,000 crore ($150 million) for businesses that export to countries outside the US and Europe and has imposed further credit rating conditions for diamond businesses requesting additional finance. At the end of last year, the bank finalised its diamond business credit policy. All existing borrowers with loans over Rs 50 crore have been instructed to turn their partnership firms into corporate firms by the end of this year or face extra collateral. This will increase tax liability, as reported by ET Bureau.

As Belgium and Hong Kong are two of the largest jewellery trade and distribution centres, many businesses will find borrowing capped at Rs 1,000 crore. Moreover, unlike partnership businesses, corporates have to disclose charges on assets against loans to the Ministry of Corporate Affairs. Greater disclosure and caps on funds will mean many diamond jewellery businesses have to adjust their strategies. 


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